Key Considerations for Business Lease Preparation
Signing a business lease is a major step, whether you’re opening a new storefront, moving offices, or expanding your operations. A poorly drafted lease can lock you into unfavorable terms, so it’s crucial to negotiate carefully and understand what you’re signing. Here are some key considerations before putting pen to paper.
1. Lease Type and Terms
Not all leases are the same. Commercial leases typically come in different structures, such as:
- Gross Lease: The landlord covers most expenses, including taxes, insurance, and maintenance.
- Net Lease (Single, Double, or Triple): The tenant covers some or all expenses. A triple-net lease (NNN) means the tenant pays rent plus property taxes, insurance, and maintenance.
- Modified Gross Lease: A middle ground where some costs are shared.
Consider the lease duration—short-term leases (1-3 years) provide flexibility, while long-term leases (5-10 years) may offer stability and better rates.
2. Rent and Additional Costs
Beyond base rent, check for additional fees such as:
- Common Area Maintenance (CAM) fees
- Property tax responsibilities
- Insurance requirements
- Utility costs
Some leases have escalation clauses, meaning rent increases over time. Make sure increases are reasonable and predictable.
3. Use Clause and Exclusivity Rights
A use clause outlines what type of business activities are allowed. Ensure it doesn’t restrict your ability to operate or expand services. If you’re in retail, ask for an exclusivity clause to prevent a competitor from leasing nearby.
4. Repairs and Maintenance Responsibilities
Clarify who is responsible for what. Some landlords expect tenants to handle interior repairs, while others cover major structural maintenance. Negotiate terms for:
- HVAC system upkeep
- Roof repairs
- Parking lot maintenance
5. Exit Strategies and Renewal Options
Look for early termination clauses in case your business needs to relocate or close. Some leases require tenants to pay the remainder of the lease or find a replacement tenant. Also, ensure you have fair renewal terms if you want to stay long-term.
6. Legal Review and Negotiation
Business leases are legally binding and often favor the landlord. Have an experienced business attorney review the lease to spot red flags and negotiate better terms.
At the Law Office of Rowena N. Nelson, LLC, we help businesses navigate commercial leases with confidence. Before signing, visit www.rnnlawmd.com to ensure your lease protects your interests.