Our title here reminds me of a children’s book I might read to one of my kids. As is often the case with children’s books, the opening page starts with a rhyme:
Your first commercial lease;
Subject to these terms;
You plan to grow and prosper;
Please sign here to confirm.
This book would, however, really be the story of your business’s first step into its first home and be titled, “Your First Commercial Lease!” Sorry, pictures are limited to site plans and premises diagrams.
Chapter 1: Race to Execution
It is simple to sign a lease and stuff it away to (hopefully) never be seen again. It is decidedly less simple to make sure the document protects your business’ interest (and where you are signing a personal guaranty, as is often the case, your personal interests too). And so, while the rhyme above is simple enough to call a children’s book home, it exemplifies the hard-to-ignore urge to race to execution. Once you sign, the negotiation is over, and you can move on to actually running your business.
Chapter 2: It’s Not You, It’s Me.
The key to a successful lease negotiation is thoughtfully conveying your expectations to the landlord and making sure those expectations are accurately reflected in the lease agreement. This can mean the end of the negotiation where the parties discover their expectations are not aligned; much better to figure that out now than in a year or two. One common pitfall here is hyper-focusing on the business terms (e.g., rent, renewal options, and parking spots) and not on more general real estate or legal provisions. “Relying on professionals like a commercial real estate broker or attorney is particularly useful here.” The Commercial Real Estate Attorney said… These terms typically start out in a landlord-friendly position and are easy to skim over as they seem “standard” or, upon ill advice, “market for this area.” Some common terms you might gloss over that could have an outsized impact on your bottom line; include (without limitation… of course):
- Indemnification. You indemnified landlord for what now?
- NNN Expenses. What is included? What is not?
- Utilities Interruption. What happens if the building loses power for 5 days? What about 10?
- ADA Compliance. Who is responsible for making the parking lot ADA compatible?
- Alterations. Can I move that wall without my landlord’s consent?
- Subleasing. Can I let my friend’s company use a small portion of my space?
Sometimes provisions may not be up for debate while others, particularly ones that affect your day-to-day operations will likely have some wiggle room because ultimately the landlord wants someone to occupy the space and pay rent.
Chapter 3: Grow and Prosper.
Sometimes growing and prospering is about increasing the number of customers you have or landing a big order – sometimes it is about avoiding disputes with business partners (landlords included). If you would like assistance with your next lease negotiation, please give us a call or send us an email. We would love to help make sure Your First Commercial Lease! terminates happily and in accordance with the terms set forth therein.
