Get the Right Lease When Leasing Commercial Real Estate

The process of purchasing commercial real estate, especially for the first time, can be overwhelming. The first step is finding the ideal property, one that suits both your business needs and your financial resources. The next step is drawing up the right lease. When purchasing commercial real estate, as with any other major financial transaction, I strongly recommend you retain the assistance of an experienced attorney.

The details of your lease agreement will be very important for your financial future. These details can save or cost your business thousands of dollars annually, so it is vital for you to look over every section of your lease agreement with care. Below, I am listing some items you and your attorney should consider before you sign your new lease. 

- What space are you renting?

The lease should clearly define the parameters of the space you will be leasing, including a site plan. A lease that is not clear in delineating what your property can lead to future costly Landlord/Tenant disputes. A common issue of contention is common areas and their maintenance. Most leases will hold Tenants responsible for at least some of the cost of maintenance of common areas, make sure 

- What is your rental rate and how is it calculated each year?

Your lease should state not only your rental rate, but how much it will increase each year, whether that is determined by a formula or simply a flat rate. 

- Do you have an "Exclusive Use" clause?

In commercial real estate, renters are commonly given an "Exclusive" if their property is located in a shopping mall or other commercial area. An "Exclusive Use" clause gives you the right to be the only business of your particular type in the commercial area owned by your landlord. An "Exclusive" can ensure your new business wont deal with direct competition and save you money in the process, so make sure you consult your attorney if these rights are not mentioned in the initial draft of your lease. 

- Does the lease include a "Personal Guarantee"?

A "Personal Guarantee" is a clause in your lease that holds you, as the renter, personally liable for the rent if the business is not able to pay it. Personal Guarantee clauses have become increasingly common in the past few years, but this does not mean you have to outright accept them. If signing a Personal Guarantee makes you uncomfortable, you can ask your attorney to revise it to cover only a set amount of time, for example the first two years of the lease.

- Does the lease permit subleasing?

A lease that permits the renter to sublease the space can be a big advantage to renters, especially if you signed a Personal Guarantee. Subleasing rights allow the renter to lease out the property and cover rent costs if difficulties arise. 

You and your attorney should consult on each of the above topics before you sign your new lease agreement. Good luck!