Renting a commercial property is a big responsibility for your business. The size, location, and monthly lease could determine the success or failure of your enterprise. A commercial lease is prepared by the landlord and designed to protect and favor them, so it's important to understand the underlying terms before you sign.
Research market trends for renting commercial property in the area.
Your monthly lease agreement plays a critical role in your business, and you want to make sure you are signing a contract with no hidden fees and at a favorable price. Unlike residential leases, with a commercial property, you can negotiate your terms to make sure you are getting the best deal, look for the following:
Rent Increase
Most landlords will increase rent annually. Negotiate the amount and day in which the increase will take place, so you aren't left with any surprises. Most small businesses agree to short-term contracts, but if you decide to stay on you'll want to check for renewal costs. For long-term contracts, you can negotiate with the landlord about capping the interest rate at a manageable amount.
Hidden Expenses
The landlord might pass on some or all of the operating costs to your business. Know what you are working with, so you can budget accordingly and ensure you are getting the best rate for your business.
Savings Options
Some commercial lease agreements offer the tenants the opportunity to save money when they make updates to the space they are renting. If you plan to renovate or change the rental area in any way, you'll want to make sure this clause is included. It will help shoulder the expenses.
Ensure your term clause is favorable.
The term clause references the length of your lease. It's near the beginning of the contract and essential because it specifies the start and end dates. This part gets tricky because landlords could determine the start date the same day the lease is signed. If you haven't conducted business, you've yet to earn the capital to pay your rent. A great commercial lease will have many start dates discerning when your first rent is due when you become responsible for insurance when you can open for business, etc.
Check the fine print in the use and exclusive clauses.
These two clauses are the trickiest to navigate, and an expert legal eye would come in handy because the terms can be very broad or incredibly specific. What the "use clause" does is set the parameters for how you can and can not use the space. You'll want to make sure you can operate under the restrictions the landlord has set forth. Some of the things landlords can restrict is the type of business you can conduct onsite. This aspect is crucial because it could set limits on abilities for such things as expansion into new business areas. Restrictions can also be put in place regarding signage or advertising on the premises. The “exclusive” clause is written to give you the rights to do something other tenants can't. It's helpful because it limits your neighbors from becoming competitors. If for example, you offer computer repair services, your business model now becomes a use clause for future tenants, meaning they can't also provide computer repair services.
What type of commercial insurance are you required to have to operate?
Landlords will require you to carry some form of commercial insurance to rent the space. What they expect varies, but most contracts will have a dedicated clause addressing specifics. Most common types of coverages required for commercial real estate are:
- Property Insurance: Property insurance covers the cost of damages and losses to the building or personal property. This type of coverage is great for possible fire damage, flooding, or theft.
- Liability coverage: This type of insurance covers the cost of injuries to third parties. If someone sues for personal injury or property damage, this insurance covers the costs.
- Workers' Compensation: Most businesses hire staff to help them run their business, and workers' compensation provides coverage for those who are possibly injured while on the job.
- Automobile Insurance: If your business model requires the use of transportation, automobile insurance reimburses for stolen vehicles, damages from an accident, and driver injury.
It is critically important to have reliable real estate attorney if you are leasing commercial real estate in the Nashville area. The configuration and physicalities between each type of lease are nuanced. You'll want to ensure you are getting the best opportunity in a challenging market. The right legal representation helps you negotiate the deal, prepare contracts, review terms, secure title insurance and close.
Rochford Law & Real Estate Title will provide you with the due diligence and attention to detail to ensure efficient handling of your commercial lease agreement. Contact Rochford today to take the next step in your venture.
