Understanding Important Terms in Your Commercial Lease
Signing a commercial lease can be one of the most important things that you do as a brick and mortar business. No matter what kind of business you are, a lease can make or break your business; it can increase expenses to the point that you cannot keep the doors open, and can keep clients and customers from getting or staying with you.
Despite its importance, many business owners know very little about commercial leases.
Unlike residential leases, commercial leases can vary from landlord to landlord, and there are fewer laws to protect commercial clients. That means that if you aren’t careful, you can be taken advantage of very easily, and you could find yourself in a multi-year lease that kills your business, but which you can’t legally get out of.
Here are some common terms you should understand when reading a commercial lease:
What net is it? – Depending on whether your lease is a net, double net, or triple net lease, you could pay more or less for the space you are renting. Net leases only require you to pay utilities and property taxes (in addition to base rent). On the opposite end is the more expensive triple net lease, which will obligate you to pay for almost every repair, maintenance, or upkeep of the property absent structural repairs.
Rent – In commercial leases, rent isn’t just rent. Base rent is the rent we commonly think of in any lease. But additional rent can add onto that by requiring a tenant to pay more based on square footage, common area maintenance, or additional expenses, like security or after hours access, or other amenities or benefits.
Build out – Some spaces may need some renovations before you move into the space. Your lease will say who will pay for those buildouts. Just as important, you must resolve what happens and whether rent commences, if there is a delay in build out—build out is construction and construction projects are notorious for delays.
Square footage – Yes, your lease will have the square footage of the property you are renting. And you will pay rent based on that square footage. But there is also the square footage of the areas that you may share with other tenants. This can be common areas, or shared conference rooms, or shared break rooms. That is often called rentable square footage.
Insurance – Depending on your lease, you will likely pay some insurance. Most landlords will require you to pay for insurance on the property to cover damages to the property itself. Some may require you carry liability insurance, naming the landlord as an additional insured. Your lease may just make you pay a set amount to cover insurance, or it may give you the freedom to get a policy that the landlord approves of.
Use Restrictions– Over time, you may want to use your property for other businesses that do other things. If so, you need to make sure your lease’s use clause doesn’t restrict the ways your space can be used, or the businesses you can operate from that space.
Call the West Palm Beach business litigation lawyers at Pike & Lustig today for help understanding or negotiating your commercial lease agreement.