Commercial leases can be an excellent option for business owners and executives. Instead of trying to find financing to purchase property and making a permanent commitment to a specific location, they can try the facility out temporarily to see if it is the right choice for the company.
Leases are beneficial both for startups and expanding organizations. However, leases are executory contracts that create long-term obligations for the party signing the lease. It is therefore incumbent upon owners and executives to review lease documents carefully.
Commercial leases typically include dozens of clauses spread over multiple pages. The prospective tenant may need help reviewing the lease for unfavorable terms. The three terms outlined below can be among the most problematic when it comes to expanding a company or establishing a new businesses.
Excessively long lease duration
It is common practice for commercial leases to last multiple years. Most commercial leases last for at least two years. Some of them may lock businesses into a specific location for five or even 10 years. Determining how long the lease lasts is of the utmost importance for the protection of the business in case it needs to downsize, upgrade or move to a new location.
Excessive maintenance obligations or fees
There are two ways for commercial landlords to address facility maintenance. Sometimes, they include clauses that make tenants responsible for everything from exterior maintenance to facility repairs. The tenant may have to pay if the HVAC system fails, for example. Other times, landlords charge maintenance fees. There may be a monthly flat fee in some cases. There may be a variable common area maintenance (CAM) fee based on the costs the landlord incurs in any given month. They may pass on expenses ranging from parking lot resurfacing to replacing the siding on the building to tenants.
Restrictive covenants that limit the use of the space
Commercial landlords often impose a variety of limitations on how tenants use the space. For example, they may only permit the tenant to use a set number of parking spaces for their employees while prohibiting direct facility access by clients or customers. They may restrict the business to a specific type of operations, such as retail sales. If the business tries to change over to offering on-site mobile phone repairs, that could constitute a violation of the lease. Businesses generally need a degree of flexibility as the company grows and evolves. Lease terms restricting the use of the space can prevent the business from changing how it operates and may leave it vulnerable to costly fees or eviction in some cases.
Reviewing a commercial lease with a professional who is familiar with such documents can help business owners and executives protect an organization against an unfavorable agreement. Leases typically require careful review before tenants can commit to a long-term arrangement with a commercial landlord confidently.