This week in the Freedom Friday blog and email newsletter, we're continuing the series 10 Steps to Take Your Small Business to the Next Level. Today we're going to cover the eighth step in taking your small business to the next level, and that is commercial leases and real estate. One of the challenges that growing small businesses face are lease agreements. Whether it is negotiating a commercial lease agreement for office space, or the small business itself is leasing residential or commercial properties, handling a lease is a key issue that many small businesses deal with on a regular basis. If you don't understand a lease agreement as a small business owner, then it is always best to consult with an attorney who can interpret the lease agreement for you and explain to you the provisions. Here are seven (7) key issues to look for in regard to a commercial lease agreement:
1. The Space
The space is the “what” that is being included in the rental agreement. If your small business wants to lease office space, some commercial leases include provisions for common areas, e.g. hallways, restrooms, entrances, and elevators. Look at the lease. Does the landlord quote a rental fee based on rental square footage, or usable square footage? Rental square footage usually includes common areas, while usable square footage will not include common areas.
2. The Term
The term is the length of the lease. Every lease agreement should have a start date, an end date, along with any renewal options. In some cases, there might also be an option for the tenant to purchase the property from the owner.
3. Rent & Costs
Obviously, the lease will provide a dollar amount for the tenant to pay the landlord each month. However, some leases give the opportunity to the landlord to increase rent during the term of the lease. One way in which an increase can occur is based on the Consumer Price Index (CPI). The lease might also provide for additional costs like maintenance fees, insurance, property taxes, etc.
4. Improvements, Modifications & Fixtures
The lease agreement should provide whether the landlord needs to agree to improvements to the space like new carpets, added seating, cabinets, etc. Likewise, the lease should be clear who will own these modifications at the end of the lease term. If you outgrow the space or need to move, can you take the cabinets with you? Usually not because the property owner will own any improvements made to the space, but the tenant may have the right to take any fixtures, which are items that become part of the property, but can be removed easily and with limited effect on the building.
The lease agreement should also provide whether the landlord or tenant is responsible for specific repairs. For instance, some lease agreements will provide that the landlord is responsible for certain types of repairs, but the tenant will be responsible for other repairs. You need to know who has the responsibility to fix the plumbing, heating, and air conditioning. Also, some leases will require the tenant to return the premises in original condition to the landlord, with no exception for normal wear and tear, or damaged caused beyond the control of the tenant. These issues should be properly negotiated with the landlord when negotiating the lease agreement.
Perhaps one of the most important parts of a commercial lease agreement is the termination clause. There are two issues here. One issue is if there are requirements to terminate the lease before an automatic renewal. The other issue is early termination. Look carefully to see if the lease agreement provides for early termination. If there is not an early termination clause in the lease, you need to negotiate one with the landlord for advanced planning.
7. Dispute Resolution
Lastly, look at the lease to see what it provides as to dispute resolution. Many commercial lease agreements require mediation or arbitration as a means of avoiding the courts.
Last but not least, if you do not understand a lease agreement, don't sign it until you have it reviewed by an attorney. Always understand any document before you sign it.
If you are interested in starting a small business anywhere in Oklahoma, or you are interested in taking your small business to the next level, please contact me at [email protected] to schedule a FREE strategy session.
For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/