One of the challenges that small businesses face are lease agreements. Whether it is negotiating a commercial lease agreement for office space, or the small business itself is in the business of leasing residential or commercial properties, handling a lease is a key real estate issue that many small businesses deal with on a regular basis. There are several issues a small business owner should review in any lease agreement, especially in a commercial lease. Here are seven (7) key issues to look for in handling a commercial lease agreement:
1. The Space
The space is the “what” that is being included in the rental agreement. If your small business is looking 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 landlord.
3. Rent & Costs
Obviously the lease will provide a dollar amount for the tenant to pay the landlord each month. However, some leases provide the opportunity for 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 if the landlord needs to agree to improvements to the space like new carpets, added seating, cabinets, etc. Likewise, the lease needs to be clear who owns 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 landlord 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 will be responsible for certain types of repairs, but the tenant will be responsible for other repairs. Who has responsibility for repairing 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 in the process of negotiating the lease agreement.
Perhaps one of the most important clauses in a commercial lease agreement is the termination clause. There are two issues here. One issue is what are the requirements to terminate the lease before an automatic renewal. For instance, the lease may require the tenant give notice of a specific number of days to the landlord in order to terminate the lease. The other issue is early termination. Look carefully to see if the lease agreement provides for early termination. If no early termination clause is in the lease, one should be negotiated with the landlord for advanced planning.
7. Dispute Resolution
Lastly, look at the lease to see what it provides with dispute resolution. Many commercial lease agreements require mediation or arbitration as a means of avoiding the courts.
If your small business is considering a commercial lease agreement, make sure you understand the terms and provisions of the lease agreement. If you don't understand a lease agreement, it is always wise to consult with an attorney who can interpret the lease for you and advise you regarding any lease negotiations. This is the first step to avoid an eviction which you do not want to experience as a small business owner.
At Liberty Legal Solutions, LLC, we offer small businesses a document review service a la carte at $250.00 per document. We are here to review leases and assist with any real estate issue you might have as a small business owner. For more information regarding real estate legal services, please contact me at [email protected]
Also, if you are interested in starting a small business anywhere in Oklahoma, or if you have a small business and you are looking to grow, please feel free to contact me at [email protected]. For more information about Liberty Legal Solutions, LLC, please visit our website http://www.libertylegalok.com.