Basics Of Commercial Leases
You need space for your growing business. The commercial landlord has space. Seems like a simple matchup, right? Not so much. A commercial lease is a contract between two businesses. Unlike residential leases, the law and the courts generally assume both businesses are represented by attorneys who understand the details of these kinds of contracts. So commercial leases are typically very long and complicated, and they are usually drafted by the landlord initially to be quite unfair to the entrepreneur who needs the space. It takes a lot of work to pound an initial lease proposal into something that your company can live with.
What Are Your Intentions?
Commercial lease negotiations typically start with a letter of intent (often referred to as the LOI), a non-binding statement of what everyone expects out of the deal. This is where you bring up the things you think are most important to you initially, like a description of the property, the amount of rent, the term, whether the lease will be renewable and at whose option, how you’re going to use the space, parking, deposit amount, etc. The LOI is usually no more than two pages long. You would think that would be enough, but you’d be wrong.
The Initial Lease Terms
When you get the lease for review, it could be 40, 50, even 60 pages long. It will contain things you may have never thought of, like your company may be responsible to pay real estate taxes and the landlord’s legal fees and common area maintenance in proportion to your…what, square footage, rent, something else? There will be terms that make you do all sorts of things–such as maintain your space and the HVAC that supports it, have insurance in the amounts the landlord want you to have, , but very little is likely to be said about the landlord’s responsibilities.
Indemnity, Remedies, Offsets and Force Majeure
All of that “boilerplate” that makes your eyes glaze over, it’s really important stuff! Pay particular attention to the remedies you have in case the landlord defaults on his obligations (he should have some obligations). What happens if there’s war or riots or a tornado or hurricane and you are prevented from doing business, will that be covered by insurance you are required to purchase or is your rent suspended for a time?
You’ll Guaranty Those Lease Payments!
You have a limited liability company, so you are not personally responsible for the debts of your company, right? Well, commercial landlords know that, but they want their rent for the full term of the commercial lease. So it is highly likely that you will be required to sign a person guaranty. That will make your personal assets available to the landlord in case (gulp!) your company doesn’t have the financial resources to pay the last three years of rent.
There are many, many more things to look for in a commercial lease. Remember that the courts assume you had someone skilled in commercial leases review yours before you signed it. If you don’t have the time or inclination to learn all about commercial leases, you should get a lawyer to do that for you.
Argent Place Law, PLLC is dedicated to the vision of having an entrepreneur in every household, because we believe that only entrepreneurs can save the world! Our mission is to help entrepreneurs just like you manage your business relationships and protect your ideas by using the law to your advantage.