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Tips for Understanding and Negotiating the Best Commercial Lease Agreement Possible for Your Business
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Tips for Understanding and Negotiating the Best Commercial Lease Agreement Possible for Your Business

A commercial lease is a written contract that is meant to be a binding agreement for the rental of specific property or space for a specific time.  Signing the agreement means you agree to be bound by its terms.

A written lease, rather than a handshake agreement, is important for the stability and longevity of your business if you plan to be around for longer than a few weeks or months.  A great deal of the sweat equity can be lost in an instant if a new business is forced to move suddenly.  A valid written lease agreement can help prevent that possibility.

The flip side, of course, is that a written lease agreement may be enforceable against you even if your business doesn’t make a profit.  This is one reason to keep your feet on the ground and negotiate a lease with terms your can live with in a worst-case scenario.

In regards to negotiating a favorable commercial lease, know the facts:

  • Conduct research to determine the market rate of rent in the area you plan to operate.
  • Make lists of “must-haves” and eliminate the properties that would not work.
  • Inquire about who will be responsible for paying property taxes, making repairs, and paying fines for non-compliance with local ordinances over which you have no control.
  • Study the market. How many similar businesses operate within defined geographic areas, and how many can the market sustain?
  • Verify zoning restrictions for each property that makes the short list.
  • Know the pros and cons of various commercial lease terms.

The most common types of commercial leases are gross leases and net leases.  In a gross lease, the tenant is responsible for rent of a certain amount.  The landlord pays other expenses of the property, including property tax and maintenance costs.  In a net lease, the tenant must pay rent as well as additional expenses related to the property.  Some net leases are “double net” or “triple net” leases.  Double or triple net leases mean the tenant will be responsible for a monthly rental amount, plus additional expenses of the property annually up to double or triple the annual rent.

Leases periods of longer than one year often include step-up factors to increase rent annually.  The step-up factor may be predetermined, such as three or four percent, or may be linked to an economic statistic, such as the consumer price index.

Many lease agreements contain a combination of the terms, such as a gross lease with a step-up factor built in for subsequent lease periods.

If you are considering a commercial lease agreement, consult with an attorney experienced in commercial and consumer lending, finance, and litigation before you sign.  The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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