- Are You Leasing Business Property for The First Time?
- April 23, 2018 | Author: Danielle Stager Zoller
- Law Firm: Gordon Feinblatt LLC - Baltimore Office
If you are leasing business property for the first time, don’t be penny wise, but pound foolish by not consulting with an experienced lawyer.
We know that a new business owner must be cost conscious when starting up his or her business and leasing his or her first property, whether that property be office, retail or warehouse space. However, failing to fully understand and negotiate certain terms of your lease could end up costing you and your business more in the long run. It makes perfect business sense to consult with an experienced lawyer before you sign your lease. Here are a few pointers you should keep in mind in the process:
LETTER OF INTENT?
Depending on the complexity of the deal, you might have a broker involved and you may be asked to first sign a letter of intent. You should also have your lawyer review the letter of intent before it is signed. A number of important business terms can be fleshed out in the letter of intent. Taking this step will save you time and money on the lease negotiations later on in the process.
When the named tenant is a start-up business with great ideas but few assets, the landlord will usually require a personal guaranty from a person or company with sufficient assets to cover the tenant’s lease obligations. For a new start up, that person may be the owner and his or her spouse. Your lawyer should ask for limitations on the guaranty. For example, you may be able to decrease the guarantor’s obligations once the business has had adequate time to become well established. If at all possible, the spouse of the business owner should not be a guarantor. If both are guarantors, then all of their assets, including their home, are at risk.
WHAT IS CAM?
CAM is short for common area maintenance expenses. You should fully understand the amount of any real estate taxes, and utilities that may be charged to you. For some properties such as retail settings, these expenses are not included in monthly base rent, and you will be required to pay monthly estimated installments and annual true-ups. You can find yourself paying more than originally anticipated up front or over time. Your lawyer should inquire about the types of expenses to be passed-through to you, caps on the annual increases And if you are paying a pro rata share of these charges, your lawyer should ensure that those computations are accurate.
IMPROVEMENTS? RENEWALS? EXCLUSIVITY?
There are a lot of details about all of these subjects that require careful consideration. You and your lawyer should fully understand and agree upon a clear and defined list of all of these details before you sign the lease.
For example, improvements to the space: Who is financially responsible? You or the landlord? I have seen tenants run into unanticipated expenses and costly delays when neither party fully understood the scope of the improvements needed to open the tenant’s business.
Do you have the right to renew the term of the lease? If business is booming, you MAY want the right to stay in the space.
Would your business be harmed if your landlord leases a similar business at the same property or another property close by? You may not have the leverage to obtain an exclusive but you should ask for one!
These are just a few of the issues that must be considered.