Putting your signature on a commercial lease is a huge financial decision. If signed carelessly, such a commitment can be detrimental for you and your business. It is therefore crucial that you first understand all the terms stipulated in the lease before signing your name. If you have any uncertainties regarding the agreement, consult with an attorney before signing it. To help you become more vigilant about the lease, here are some red flags to watch out for in a commercial lease.
5 Red Flags to Watch for in a Commercial Lease
- An unfavorable relocation clause - A relocation clause favors the landlord, as he or she is given the right to transfer your business to a different space or floor within the building to accommodate a tenant with a larger business. The relocation clause is, of course, a staple in lease agreements but never forget that you have the right to request for certain contingencies. Request for a written agreement that stipulates your landlord is responsible for shouldering the expenses for the relocating and the renovation required. Another contingency to request is your right to maintain the same rent, plus the same structure and quality of the space and furnishings. Lastly, demand at least a one month notice for relocation.
- Short terms and vague renewal clauses - Unless you only want the space for a short period of time, do not sign a lease that does not provide you with the option of renewing. Options for renewal should be stated clearly and should mention how much time you need for lease renewal as well as the percentage of potential rent increase. Option for renewal is good since it gives your lease some degree of flexibility. However, be wary of long-term clauses. If your business is a start-up company, you may not want to commit to keeping the space for a long period of time.
- Relying on Trust - Trust is always important in any business relationship. Just make sure to put it ALL agreements in writing. Never rely on verbal agreements alone nor oral modifications to any contract or lease. Never settle for your tenant’s “Trust Me” and “Do not worry” phrases. Transcribe all agreements in a document which should by signed by both parties.
- Vague Fees - All fees that must be paid should be stated in the contract. However, there are landlords who may attempt to charge you fees that are not stated in your lease. Never pay for occasional and unanticipated fees and expenses.
- A Lease that Limits your Ability to Improve - As a business, you have to anticipate changes in terms of growth. Avoid signing leases that restrict you from altering and improving your space. Always try to negotiate the terms.
Before you sign a lease agreement, it is imperative you speak with an experienced commercial real estate attorney who can help you identify whether the terms of the lease are fair and advantageous or whether the lease could be detrimental to your business.