Commercial leases are far less regulated than residential leases, so it's very important for small business owners to understand how to protect themselves when it comes to leasing space.
Get it Right the First Time
Typically, when a small business signs a commercial lease it's going to require a personal guarantee; and often a multi-year commitment. As the business owner you are never going to be more powerful than you are while you are negotiating, before the lease is signed. Make sure to thoroughly inspect the property and, for example, consider how the weather might impact the property (does it rain a lot, leaks might be an issue). Most landlords aren't going to consider renegotiating a lease, so you'll want to get it right the first time.
Important Considerations
- Lease Terms. Here are a few things you should absolutely have in your lease:
- Corporate Entity - if you've formed an LLC or a corporation, make sure the lease is in your company name, not your name personally.
- Renewal Options - you may never actually exercise a renewal option, but it's important to have in case you decide to stay. Location may end up being very important to your business, and moving can be expensive; deal with it up front.
- Assignment Rights - Make sure you have some sort of assignment rights, you never know when you might sell your business and need to transfer the lease. It's common to allow assignment based on the landlords approval, which can't be unreasonably withheld.
- Signage - often a very important issue for a business owner, make sure to get in writing where you can put a sign, how big, and what the costs are going to be.
- Parking - again, based on what type of business you have, this could be a major issue. If you have a lot of customer foot traffic, you'll need parking for them. Don't assume it will work out, address it in writing, upfront.
- Exclusives - this addresses whether or not a competitor can move into the same development. In particular, if you are in the food service business, this is a big deal; you'll want to try and keep competition out.
- Location. This is very important for any business that relies on foot traffic, or regularly has clients or customers coming in. Is it easy to access? Is there room to grow or expand? How much competition is already in the area? Is it located near your target market? Make sure to consider all of these things before signing a lease.
- Rent. Make sure you can afford it, and make sure the cost per square foot is competitive with other properties on the market and in the area.
Don't waste the opportunity to address potential problem areas with renting commercial space early on while you are negotiating. Everything will be a bigger issue down the road if it hasn't been addressed up front.