When it comes to commercial leases, every single word matters. Before you sign, you'll need to ensure that you understand the entire document and have had it reviewed by a lawyer. In particular, be sure to look out for the following components, as they can have a big impact on your company now and in the future:
1. Rentable Square Footage
The rentable square footage refers to the actual space that you are renting plus a portion of all shared space in the building. Your actual monthly rent and common area maintenance fees are based on this number rather than the actual usable square footage. Make sure you understand how the landlord arrived at the figure and ensure that it only includes real space.
2. Operating Expenses
If your lease will require you to pay a portion of operating expenses, you will need to know exactly what expenses you are covering as well as what will happen to your rent if those expenses increase.
3. Rules and Restrictions
Leases may have a number of rules and restrictions that may conflict with your business needs. You may be required to operate only during certain hours, face limitations related to signage and more.
4. Personal Liability
In some cases, the landlord may ask you to personally guarantee the lease. If your company should default, the landlord can then move forward with legal proceedings against your personal assets to recoup the lost money. Whenever possible, have this type of language removed from the lease to protect yourself.
5. Tenant Improvements
Tenant improvements are commonly included in commercial leases to cover the costs of renovations needed to make the office move-in ready. Ensure that the tenant improvement allowance is adequate for the work that must be done and that you have the right to remain involved in the process of finding a contractor and managing the project. If you reach an impasse with the landlord, you may want to consider forgoing tenant improvements and asking for free rent for a certain number of months instead.
6. Subleasing and Assignment
Subleasing and assignment makes it possible for you to turn all or part of your space over to another tenant without breaking the terms of the lease. These clauses can help to future-proof your lease. Look for recapture clauses that will allow the landlord to terminate your lease if you choose to sublease or assign, as these often come with steep fees.
7. Rent Escalations
Rent escalations are a standard part of commercial leases, but they can vary greatly. You'll need to know what the rent escalations are based on, when they will occur and if there are any caps on the amounts.
8. Co-Tenancy and Exclusive Use Clause
Exclusive use clauses prevent companies in the same line of business from moving into your new building and prevent the possibility of a main competitor becoming your neighbor. With a co-tenancy clause, your company has a right to exit the lease if a large anchor tenant moves out of the building.
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