One of the most important contracts you will sign as a business owner is your lease. Unfortunately, many business owners treat a lease like an on-line terms of service agreement – scan and sign.
That’s a mistake, experts say. A lease is a contract and you will be held to that contract no matter what happens to your business. Experts have a few tips to help you negotiate a commercial lease.
Short term versus long term
Never sign a lease for more than two years. Your needs will likely change – you could outgrow your space or need to downsize, the economy could collapse or the quality of the building could change. No matter what happens, you are on the hook for the payments you agreed to in the lease.
Make sure you are paying for the space you are renting. Most contracts are on a square footage basis, but the measurements could have been done years ago before remodeling, or they could include an exorbitant amount of common area or loading dock space.
Operating expenses are usually based on the previous year’s figures – when you didn’t rent the space. You should negotiate so you don’t pay expenses until the second year when you’ll have a better idea of what those expenses might be.
Basic lease structure
There are different types of leases that define what the tenant is responsible for paying:
- Single net lease – tenant pays utilities and property taxes, landlord pays maintenance, repairs and insurance
- Net-net, or double-net lease – tenant pays for utilities, property taxes and insurance, landlord pays for maintenance and repairs
- Triple-net lease – tenant pays all costs except for structural repairs to the building
- Full service gross, or modified net lease – tenant and landlord split structural repairs, property taxes, insurance, utilities and common-area maintenance
While a full service lease is the most common, it also offers little flexibility since costs remain the same whether operating expenses go up or down.
Always get any lease offer in writing. Oral agreements likely won’t hold up in court.
Most important, get every contract – including your lease – reviewed by a qualified, experienced attorney. Money spent before you sign is money saved when you need to make a change down the road.
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