Investing in commercial real estate is a critical part of any organization’s strategy. Whether the strategy focuses on growth and expansion or simply updating to a new property, negotiating a commercial lease can represent a time of significant stress. It is wise to thoroughly examine the agreement and ensure your best interests are not simply swept away.
Whether for a veteran business owner or someone exploring their first start-up, there are numerous mistakes that can haunt an otherwise effective commercial lease agreement, including:
- Rate fluctuations: While most lease agreements contain language that allows certain rates and fees to increase over time based on market fluctuations, how much leeway are you granting your landlord? Utilities such as electricity, water and sewage might fluctuate, but it is wise to have language clearly stipulating a maximum percentage increase or you might find yourself buried in rate hikes in a short period of time.
- Pre-existing conditions: Many landlords choose to include language in the contract requiring the lessee to return the property to its pre-existing condition at the end of the lease. This would mean that you must remove any updates and revert any renovations made during the lease period. It is wise to clarify these provisions, especially if the needs of your business might require significant changes to the structure.
- Research: Before signing the contract, it is wise to take the time necessary to discuss your questions with other tenants. How has their experience been? What challenges have they faced? While not every tenant will be willing to discuss these matters, gaining their perspective could help guide your lease negotiations. Failing to do so could ultimately lead to avoidable mistakes.
Finalizing any commercial real estate transaction is an exciting experience. It is wise, however, to take the time to evaluate and revise the lease agreement before signing the contract.