In this article, I’ll tell you:
- Why you need to read your lease
- What to look for when reading your lease
- What to do if you’re subletting
- How to negotiate the terms of your lease
- Why you should proof-read all the key terms
Give your Business a Long Lease (or Sublease) of Life!
Renting your business space is probably more exciting than getting the keys to your first home.
It defines your business, makes your presence known, and brings your dreams, plans and hopes to life. Whoever doubted whether you were really going into business can’t argue with a physical business address and your logo hanging above the door!
Now I know you’re ready to get in the door, get the WiFi going, turn the lights on, and feng shui your furniture! But before you do… take a step back.
To ensure you’re getting everything you want out of your new business space, and that you’re giving your business a long lease of life, let’s look at the lease.
Now, I want you to be honest with me…
Have you read the Lease?
The lease is one of the first and most important steps in taking on business premises.
It’s a contract that defines key matters such as:
- How long you can stay there
- How much it’s going to cost you
- What’s included in the premises (such as lights, heating, air conditioning etc.)
- What you can and can’t do
- What happens when it’s time to renew
So now, you may be saying…
I’ve been around the block – what’s the big deal?
I know, I know. You’ve rented homes before. You may have even negotiated better terms for yourself such as a lower deposit, free rent period, pet privileges etc. Isn’t it basically the same idea with a commercial lease? You agree on key terms, sign, pay your deposit and move in?
Your prospective lessor may encourage you to see it that way and may even pressure you to sign their paperwork on very short notice.
They may, and probably will, tell you it’s non-negotiable and that they make all their tenants sign the same lease.
Here’s why you should take a step back and read it anyway
(Or even better, have a lawyer read it for you!)
Even though the building owner may be threatening to hand your dream unit over to a line of interested tenants if you don’t sign by the morning, you should do everything in your power to read and understand what you’re about to commit to.
Do your business a big favor and buy yourself time to read that lease! Here’s why…
Commercial leases have less legal protection
The law is far more protective of residential tenants than business tenants. Humans need a roof over their heads, and so for public policy reasons, they have more legal rights and security when it comes to residential leases.
When it comes to your business, the law assumes you’re prudent enough to read the lease and understand how its terms and obligations impact you.
You’re pretty much on your own.
For example, if you sign up to taking responsibility for capital expenditure such as burst pipes and flooding damage or faulty HVAC, and your insurance doesn’t cover that because you didn’t realize you needed it to, well unfortunately you’ll be paying out of pocket – no matter how unfair it seems.
Reading the lease helps avoid signing anything that shifts the burden of these repair or replacement costs to you as the tenant, as these can be costly and could even put some out of business!
Covenants can kill
Reading the lease reveals the hidden do’s and don’ts which is crucial when running a business. Breaking a covenant, or rule, can lead to automatic termination of the lease and you may be asked to move out before you even know why.
Think how these rules will impact your business.
For instance, can you assign the lease without penalty?
Will the lease continue if you assign to another tenant who wants to buy your business? If it doesn’t, you may find you can’t sell your business at the right time or for the right price.
Can you sublease?
What if you want to share your space with another business and split the rent? If the lease restricts this, your lease may be terminated early, or you may end up over your head in rent when your business goes through a dry patch.
Can you operate your type of business on the premises?
What if you run a cupcake business, but for zoning reasons, the lease prohibits commercial food preparation on the site? Best to know that before you install that expensive commercial oven!
Sub-leasing? You still need to read the lease!
On the flip side, if you are a tenant who wants to sublease from another business, it’s just as crucial that you read the main lease and understand what your rights and obligations are, because these will get passed down to you.
You may find that you’re not actually permitted to sublease the space after you’ve invested a lot of time and money fixing it up. You’ll be asked to vacate the premises and you won’t get to recover your costs.
Make sure you understand rent increases. It’s not uncommon for landlords to jack the rent up to get tenants to move out so they can rent to new tenants at higher prices.
If rent increases are specified in the lease, how will it increase over the period of the lease? Do the increases seem fair? Will you be able to afford the rent in a few years’ time? If you can’t, you may get pushed out of a profitable area and have to start over somewhere else.
Negotiate with Confidence
Negotiation is your most powerful tool but it can only be used before you sign the lease. Afterwards it’s too late, because then you have a contract with set terms you must adhere to.
All terms in any lease are negotiable and it’s on your shoulders to advocate the best deal for your business, such as price, rent increases, right to assign or sublease and responsibility for capital expenditure.
It’s also becoming very common in commercial leases to ask you to personally guarantee the lease. This means that even if you go out of business, you’ll be personally liable to pay the remaining costs and rent. If you don’t negotiate on this, you could find yourself in a tough spot on top of losing your business.
If your lessor is a cold, corporate, management company, ask to negotiate on any terms you don’t agree with anyway.
Corporations are operated by humans. Behind the steely veneer you’ll probably find some wiggle room. Just ask.
Proof read all the key terms
Because landowners often rent to so many tenants, they use lease templates. It’s possible that somewhere along the way your lease got merged, replaced or confused with another tenant’s.
Make sure the start date, end date, rent, rent escalation terms, and any other special terms you’ve negotiated for, are correct and accurately reflect what you negotiated.
Be prepared to walk away
Finding the perfect location may seem like a dream come true, but don’t let it turn into a nightmare simply because you didn’t read the lease.
If it seems too risky after reading the lease, listen to your gut and walk away. You may just find a better space on terms that really work for you! It could make all the difference in creating your success story.
If this feels overwhelming, consider having an Equal Legal lawyer review it for you for as low as $68 per month. That small investment could end up saving you thousands, protect your business assets and save you a lot of headaches.
Your Biggest Advocate
Equal Legal is a membership site for California business women who know their worth and are ready to invest in their business. By joining Equal Legal, you’re not only getting affordable, world-class legal consulting, you’re also getting a legal advocate who understands your unique challenges as women.
If you’re ready to invest in your business, join the Equal Legal family today!
Nothing within this article is intended to be construed as, or used, in the place of legal advice.