Business owners will usually enter into a commercial lease agreement as they establish or grow the business, as renting property is less costly than purchasing it and requires less capital. Before entering into any agreement, however, it is important to understand the terms, conditions, cost, length of the lease and suitability to the needs of the business.
Commercial lease agreements are more complicated than residential leases, and do not benefit from consumer protection or landlord/tenant laws. The terms are highly negotiable because tenant needs are variable. And although residential leases usually go for no more than a year, commercial leases are often longer.
When entering into business and commercial transactions, business owners will benefit from an attentive review of all contractual aspects of the transaction by qualified legal representation serving Long Beach and the California coast.
Will the terms meet the needs of the business?
In order to ensure that the lease agreement will satisfy the needs of the business, some important elements that should be present include:
- Rental amount and increases: It is customary to calculate rental amount by the square footage of the space, however, negotiable terms may include utilities, property taxes, insurance and repairs. Annual percentage rental increases are also negotiable, as well as caps on percentage increases.
- Security deposit: The amount of the deposit and the terms regarding its return should be spelled out in the agreement.
- Improvements or modifications: These should be clearly articulated in the agreement, who is the responsible party for making improvements as well as the terms for returning the space to its original condition upon termination of the lease.
- Use and exclusivity clauses: As the agreement should specify what activity is allowed on the premises, as this reduces property owners’ liability for damages, it is wise to negotiate for a broad usage clause. In addition, an exclusivity clause will prevent a landlord from renting space to a competitor.
- Assignments and subletting: Negotiating for the right to assign or sublet the space provides the business owner with the means to cover the rent in the event the business fails or relocates.
- Americans with Disabilities Act (ADA): A business that is open to the public and has more than 15 employees must be accessible to persons with disabilities. The lease should include terms that assign responsibility and financial obligations to the party making alterations to the premises.
These and other key considerations are essential aspects of any commercial lease agreement, and so it is important to understand the formulas and provisions that outline all rights and responsibilities before signing.