Preparing to Sign a Commercial Lease for Your Small Business

by Greg DePersio

2 min read

Renting a space for your business can be extremely exciting, but before signing anything, you should speak with the landlord and look over the lease closely. If you want to have a successful experience and avoid unexpected costs, there are several elements to consider.

Rent

Rent on commercial leases is often a set amount per month. However, there are also other arrangements. For example, some lessees pay a set monthly rent plus a percentage of sales.

In addition to understanding the base rent, you also need to know what the rent includes, and whether you or the landlord are responsible for expenses such as taxes, utilities, and insurance. Typically, with a gross rent lease, you pay the rent, and the landlord picks up operating costs. Net leases include rent and some taxes, while net-net leases include rent, tax, and landlord insurance. Finally, with triple net leases, you cover rent, tax, operating, and maintenance costs.

If you are responsible for additional expenses, they may be included in the rent, or they may be charged to you on an a la carte basis. Make sure you understand which option applies in your case.

Features and Amenities

It is critical to ensure the commercial rental space offers what you need. You should consider floor space, features, and amenities. Ideally, you need to know which amenities you have access to and what your obligations are in terms of upkeep. For instance, some commercial rentals may share parking lots, and the tenants may split the cost of snow removal.

Modifications and Repairs

In some cases, you may find a commercial space that is turn-key ready, and in these situations, you simply need to open the doors, bring in your stuff, and open for business. However, that is not the case with many commercial rentals, and in most cases, business owners need to make modifications so the space fits their needs.

Before signing an agreement, make sure you understand the rules in regards to modifications. Are you allowed to install permanent fixtures or remove existing features? At the end of the lease term, does the rental need to be in the exact same condition? Ideally, you should know the answers to these questions before signing the agreement. Also, make sure you know whether you or the landlord is responsible for repairs so you can avoid any unexpected repair bills.

Lease Term

The lease term is the length of the lease, and it can vary drastically. If you know you’ve found a prime spot and are confident about your business, you may want to sign a two-year lease. Conversely, if you need flexibility, you may prefer to sign a month-to-month agreement.

Final Details

If everything looks good, take some time to thoroughly read the agreement. If you made any verbal agreements with the landlord, make sure those are noted on the lease. A verbal agreement, in most cases, does not supersede a written contract. Also, consider having a lawyer look over the details. When all that is done, you’re ready to sign the lease and start moving in to your new space.

References & Resources

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