Whether you’re a new business owner just starting out, or have a thriving business and are moving into new space, becoming a tenant in a commercial lease agreement is a big decision.
As a business owner, it’s important that you understand your rights and obligations in a commercial lease.
It’s also important that you understand that a commercial lease agreement is different from a residential lease, and that you may not have many of the protections afforded to a residential tenant. That’s just one reason that, as a business owner, it’s important to work with an experienced commercial real estate attorney who can help you negotiate favorable commercial lease terms.
First and foremost, there are few, if any, consumer protection laws that cover commercial tenants.
Unlike a residential lease, in a commercial lease the law assumes that both parties are sophisticated businesses and will, or at least have the opportunity to, work with an attorney.
Unlike a residential lease, most commercial leases are not based on standard forms, but instead are unique contracts designed to meet the needs of a particular landlord.
In some cases, commercial property has special amenities that suit a particular type of tenant. In others, landlords are willing to make certain changes or improvements to the property in order to gain a tenant who might lease the property for many years.
Most commercial landlords lease multiple units, and work with a commercial real estate attorney to protect their interests.
As a result, most commercial lease agreements will favor the landlord. However, most commercial landlords expect that a commercial tenant will negotiate the terms of the lease. A skilled commercial real estate attorney can negotiate significant improvements on almost every term.
As a commercial tenant, it’s critical that you review and understand each term of a commercial lease. A commercial lease agreement is a contract that is very difficult to break. And because most commercial lease agreements are for a term of multiple years, this means that a significant amount of money could be at stake.
When you consider a commercial lease, be sure that the space is suitable for your business. If your business has unique needs that require modifications to the existing space, such as the use of cubicles, a loading dock, or re-wiring for better internet and communications connections, be sure that the landlord will allow you to make these changes. In many circumstances, you can negotiate these changes, and who will pay for them, into the commercial lease agreement.
Also consider whether your business is covered by the Americans with Disabilities Act, which requires that all business that employ more than 15 people have a premises accessible to people with disabilities. If your business falls into this category, be certain that your premises complies with the ADA and, if it does not, be very clear about who will be responsible for bringing the property into compliance.
Many commercial landlords offer long-term leases. Lease terms of 5 to 10 years are not unheard of. But before you sign on for a long-term lease, consider where you are in your business growth, and whether it makes sense to tie yourself to a long-term lease.
If the needs of your business change, for example because of growth or a change in your business model, you may need the flexibility to move to a different location. On the other hand, if your business requires specialized equipment or if location is critically important, a longer lease term might be beneficial.
A good solution is to negotiate a shorter initial lease term with one or even multiple options to renew. When you sign a commercial lease with an option to renew, the lease agreement will give you the option to notify the landlord of your intent to stay within a certain number of days or months before the original lease term expires.
There may be a rent increase built into the option to renew, but you can negotiate the amount of the increase, or if there will be one at all.
You will want to consider whether you want the option to sub-let your premises. If you do, make sure that the commercial lease allows it.
Also consider whether the landlord will place any restrictions on advertising, if that is important to your business. For example, if your business depends on walk-up business, be sure your landlord will allow you to advertise on the street.
Similarly, if you are in a competitive market, consider negotiating a clause that prevents the landlord from leasing to a competitor.
Negotiating a commercial lease is a complex undertaking, and large sums of money may be at stake. Don't leave such a significant investment to chance. A commercial real estate lawyer at Fremstad Law can help.
If you are a business owner and are considering a commercial lease, North Dakota commercial real estate attorney Leslie Thielen can move you forward.
Contact the North Dakota business attorneys at Fremstad Law by calling (701) 478-7620.
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