After you find the perfect location for your business, you must consider the terms of the lease. Renting space can be a costly mistake if you don’t know which questions to ask before signing a commercial lease.
Commercial leases are commonly set for two, three, or even five years. Determine in advance how many years you are willing to commit to the space, and negotiate if the property owner wants more than you’re willing to take on.
Understand the circumstances under which you could terminate the lease. Circumstances could change in the area, impacting foot and auto traffic. Negotiate a “break” or “out” clause that allows you to terminate the lease early if something unexpected happens that impacts your business. Also, find out if subleasing or assigning the lease is permitted, in case your business needs to change.
Permissible Uses and Modifications
Make sure the lease allows for your intended use of the property. Landlords may require tenants to make modifications, such as installing additional insulation, soundproofing, or ventilation alterations, depending on the use of the property.
You may need to modify the space to meet your business’s needs. Find out whether the modifications you require are permitted before you sign the lease.
Rent and Fees
Pin down details of what the landlord is asking for rent. How is rent calculated? If it’s a figure based on square footage, how much and which square footage is included in the calculation?
There are more costs associated with leasing commercial property than renting. Find out who pays for utilities, trash removal, and building repairs. Will the property owner take care of seasonal maintenance such as snow removal and servicing the HVAC system, or are you required to arrange it?
“CAM” Costs, Property Taxes, and Repair Costs
Common area maintenance (“CAM”) is a fee that many commercial property owners tack on to the rent. This may include a charge for landscaping, sweeping parking and courtyard areas, and maintaining walkways. Find out how the fee is determined—is it proportionate to the percentage of the building your business will occupy?
You may also be charged a fee to cover a portion of property taxes and account for building maintenance and repairs.
Traffic Patterns and Parking
Determine the arrangements for parking. If you need dedicated parking spots for your customers, make sure it’s all spelled out in the lease.
Don’t sign a lease for a particular property only to discover that a similar, competing business will open next door to your own. Negotiate a non-compete type clause that ensures your business will be the only one of its type on the property.
What Type of Insurance Is Necessary
The property owner should carry casualty insurance for the building and liability insurance for common areas. But you will likely also provide liability insurance for the space you lease in case an employee or customer is injured at your business.
There are many more questions to ask before signing a commercial lease. Consult a knowledgeable real estate agent or broker who is experienced with commercial leasing, and ensure your attorney reviews the lease before you sign it.