What to consider before signing a commercial lease

Updated: Jun 18, 2020

Opening or expanding your own business is an exciting time. Things are going well, and you are ready to sign a commercial lease on a new space. However, before you sign on the dotted line, there are some important things you should consider. After all, office or retail space is usually the biggest monthly expense for a company. Come up with an idea of how long you will stay Before you sign a lease, you should have some plan of how long you intend to stay in that space. Maybe you are just starting your business, so your future success is uncertain. Or perhaps you have owned your business for some time, and you have the company’s growth planned well into the future. If you are just starting out, you will likely want to sign a short-term lease. Short-term leases are typically either month-to-month or a lease that is less than five years. Signing a short-term lease makes sense, but you want to be careful the terms do not change drastically when it is time to renew it. With long-term leases, you typically have more room to negotiate. You may be able to get lower rent for the length of the lease or get the landlord to lower costs on building out the space. Think about expansion You should think about whether your plans include significant growth in the number of employees or the products or services you sell. If you think the company will grow significantly during the lease, you should consider whether this building has enough space to accommodate growth. If it does not, you may want to consider a different space. You could also consider subleasing your space, if you think you are likely to outgrow it. However, you will need to include this possibility in your contract. Typically, landlords include restrictions on subleases. If subleasing is likely, discuss it with the landlord, and see what restrictions he or she would place on someone who subleases. Be aware of the terms of your lease There are generally two types of commercial leases: a gross lease and a triple net lease. With a gross lease, you pay a fixed monthly fee which includes any taxes or other expenses. A triple net lease is different. You agree to pay your rent, but you also pay the net taxes, net insurance fees and the net maintenance expenses. A triple net lease provides more protection to landlords. So, if maintenance problems occur or taxes skyrocket, a landlord’s bottom line is not significantly impacted. If you are offered a triple net lease, you want to get a good idea of how much taxes have been over the last three years and what other carrying costs are included. This will give you a better understanding of your monthly expenses. Signing a commercial lease can be an exciting time in the growth of a company. However, there are a lot of loopholes and legalities you may not think to check for. You may consider reaching out to a commercial real estate attorney to have him or her review your lease.

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