Small Business Lease

The Lease ...

Whether you need to rent an office, retail space or a factory, you will be presented with a lease to sign.

These are the things to do before signing any lease ...

• All leases must be read carefully and completely. So tell the landlord that you will take the lease away and return with your comments and questions, once you have read it. This can be time-consuming and difficult if you do not understand the lease terms, but it is a must.
• Take the lease away and read it thoroughly, making notes of all those items that you are unsure of or do not understand.
• List those items that you would like included in the lease. (see below).
  • Every lease is open to negotiation and landlords expect this, so list all the items you would want in the lease.
  • You might be surprised at how many are agreed to.
• Be prepared to negotiate the lease with the landlord and clearly note any agreed changes.
  • The landlord or his attorney will normally draw up the lease with the agreed changes and a copy will come to you for checking.
• If you are happy with it, take this copy to your lawyer for his comments.
  • If your lawyer has specialist knowledge of real estate, so much the better.
• Once you are happy with the small business lease, it can be signed.

Business Lease Contracts and What to Check For ...

You need to be aware of and check that the following items are covered in your lease.

• What usable floor space are you getting?
  • Don?t rely on the landlord?s measurements, check for yourself to ensure you will be paying for actual space and not fictitious space.
  • If there are any common areas, for example in an office block, ensure that you are only paying for your share.
  • Remember that you will also be paying rental on such areas, and that increases the cost per square unit of your usable area.
• If there are any common maintenance charges for which you pay your pro-rata share, make sure that they do not also include the landlords maintenance responsibilities. Landlords tend to load these expenses.
• Rents are always negotiable,
  • But be careful to understand how the rent is made up.
  • Is the rent based also on factors of the landlords other expenses, such as land taxes, insurance, etc.
  • Are the factors on which your rent will be based fair?
• Who is responsible for repairs and maintenance?
  • Who is responsible for what; make sure that you are not agreeing to pay for R & M that should be your landlords responsibility.
• Payment for and recording of utility costs can cause problems if not laid down in your lease.
  • If you are paying for electricity, gas, water and sewage are they metered?
  • Is it a utility meter or the landlords sub-meter?
  • Are the costs included in the rent?
• Who is responsible for the buildings insurance? Does it cover leakage damage to your property?
• Are you or the landlord responsible for the property taxes?
  • Be real careful here that you don?t agree to pay for taxes into the future, such as those that can arise from a change of ownership.
• If you wish to erect any signage, make sure that the sizes and types are agreed to in the small business lease.
• Make sure that your business can legally operate out of the leased premises.
  • Check with the health and fire departments as well as the city zoning and building departments.
• Ensure that you are not going to be held responsible for any past or future infringement of laws regarding the buildings.
  • Get it stated in the lease that the buildings are in compliance with all existing laws and regulations.
• If you require certain alterations done to the buildings.
  • These should be negotiated with the landlord.
  • Where the landlord is responsible for the alterations or improvements, make sure that you only start paying the rent then they are complete.
  • On the expiration of your small business lease will you have to restore the building to its former state? Who will pay for this?
• Security is of increasing importance.
  • Do you need to secure the premises or employee security guards?
  • If so negotiate the responsibility for costs.
• Include the provision that you are able to sublet or assign the premises if for some reason you want to move out.
  • If you decide to close the business or move to larger premises you don?t want to be left paying the rent on an empty building until the lease expires.
• If by some chance your leased building is destroyed or damaged will you still be responsible for the full rent?
  • If the building cannot be used by you for its purpose, then you and your landlord must have the right of termination.
  • If only partially damaged, but still usable, the rent must be reduced or abated.
• Be aware that many small business leases fail to mention any tenant rights.
  • The law provides tenant rights which if you are not careful will be waived or not mentioned at all.
  • Try and negotiate to keep as many of these rights as possible included in the lease.
• Make sure that a written description of the premises is included in the lease. This should include a drawing and details of buildings, roofing, etc.
• Remember to find out who really owns the building that you wish to lease.
  • Is it the landlord or his bank?
  • If it is his bank, insist that he gets you a non-disturbance agreement from the bank that will allow you to remain in the building even if your landlord defaults, provided you pay the rent of course.
• Be very careful about the terms of your small business lease in regard to the length of the lease.
  • A long term lease can be a real liability if circumstances change or something goes wrong.
  • A short term lease is also a potential problem if you are forced to leave before you want to or are ready.
  • The ideal lease length is, in my opinion, a short two or three year lease, with plenty of three year renewal options.
  • Also tie in your rent increases at this time, if possible.
• If you will be renting retail space build in a few bail-out clauses that, for example, allow you to cancel your lease if your sales are not as expected, or if the anchor store in the area moves or closes down.
• If you are to rent in a shopping center, you will need protection from competition, so restrict the landlord from leasing to competing businesses.
• Beware of restrictive leases that limit what you can do or sell.
  • You might start in business as a clothing boutique but want to change to a sports outlet because it has better potential.
  • Get the widest definition you can in the lease as to what and what not you can do.