Key factors that will determine the success or failure of the tenant’s business are the terms found in their commercial lease. Knowing the terms of the lease is critical for the tenant to understand in order to avoid unnecessary aggravation and possible litigation. Tenants cannot afford costs associated with business distractions and litigation. Before any tenant signs a commercial lease, they should have the lease reviewed by their attorney and CPA in order to completely understand how certain terms of the lease can affect their business. A tenant should also use a credible commercial broker to negotiate the terms of the lease, including lease extensions. These negotiations are critical in order for the tenant to protect themselves from paying top dollar for space. The reality is, landlords are strong negotiators and are in the business of collecting as much rent as possible. Before you sign a commercial lease, keep the following in mind:
- Fewer consumer protection laws: Commercial leases are not subject to most consumer protection laws. For example, there are no caps on security deposits or rules protecting tenant privacy
- No standard lease forms: Commercial leases are not based on a standard form or lease agreement. In most instances, commercial leases are created to protect the landlord and weigh heavily in the favor of the landlord
- Long-term and binding: Lease terms are usually very long compared to most standard residential leases. Tenants cannot easily break a commercial lease. Monetary penalties are usually very costly for the tenant
- Negotiate using a qualified commercial broker: Landlords know that a commercial broker will have other spaces and options for their clients. Landlords do not like vacancy and will offer “special deals” to entice the broker’s client to sign a lease with them
Good luck and happy hunting! FBN
By Mike Hutchins
Mike Hutchins is the Owner Broker at Sterling Real Estate Management.