Things to Negotiate Before Signing a Commercial Lease

Property owners should never take a commercial lease for granted. It is the contract that binds the property owner and the tenant. Even a single ambiguity in a contract can result in lawsuits or irritate. Below are some of the aspects you need to negotiate before you sign a commercial lease.

Duration

Previously, property owners could strive to provide long leases to tenants as a way of minimizing vacancies. However, tenants now prefer long rentals as they can serve as a hedge against inflation. Commercial contracts usually run from 3 to 10 years, but you can negotiate the terms with the property owner. Your lease should state what happens if disagreements arise in the future and rent adjustments that your landlord might make. Be wary of an agreement that allows the property owner to provide an alternative building or space if either party breaches the terms of the contract.

Payable Rent

Unlike other expenses, rent is an inflexible component of your business overhead. It can be tricky to make cost comparisons when you are looking for a rental space. The best way to measure commercial rents is to calculate the annual cost of your rental space per square footage. For office spaces, the landlord is responsible for all expenses including repairs, insurance, and taxes. As a tenant, you only need to make fixed monthly payments. In some places, landlords charge electricity and heat bills separately.

The Option to Sublease

You could want to relocate your business three years into a five-year lease. As such, you can negotiate with your landlord over the kind of sublease that suits his or her needs. However, you are not off the hook even if you find a subtenant who is willing to rent your office. The original lease still holds you responsible for rent payment if the subtenant decides not to pay the rent. It is also critical to determine whether it is you or your landlord that will take the extra rent paid by the subtenant. Property owners are often eager to draft clauses that give them control over a sublease contract.

Renew Option

The property owner is not obliged to rent the commercial space to you once the present lease expires. Unless you have agreed with your landlord that you will renew the lease, you are likely to pay the prevailing San Francisco retail lease rates. You can decide to renew the lease automatically once it expires. Such contracts are common for companies with several branches and the ones that don’t want their leases to run out.

Insurance

Property owners rarely give insurance the attention it deserves when it comes to leasing out property. Many apartments especially those with dozens of tenants do not have adequate coverage. That is not only costly but also risks the lives of the tenants. In such a case, it can take months if not years for the insurance provider to sort out the claims. Landlords are liable to provide a comprehensive policy that covers liability for areas such as elevators and stairways.