Top 5 Questions to Ask Before Signing A Business Lease Contract
Entering a commercial lease contract requires careful consideration since it is a decision for the next 5-15 years and the early termination fees could be a significant expense. As a future tenant, it is best to ask all the questions before signing the contract and make sure you understand your obligations and rights.
Did I understand the terms of the lease?
Either you or preferably a member of your legal advisory team should review the lease contract. Be sure you check the duration, value, late fees and other taxes. Make sure you have explicit provisions for termination issues, freezing the deal and handling force majeure.
Who is responsible for what?
Usually, the landlord handles maintenance and facility management, but in some cases, those obligations fall in the tenant’s responsibility. Be sure to have this clearly in writing. Also, itemize all costs like trash, HVAC, heating, cleaning and more. Ask for averages of these costs for each month to avoid unwanted spending. Also, decide who is responsible for paying the insurance for the building and furnishing.
How are CAM issues handled?
CAM is short for common areas maintenance and is one of the most controversial subjects of lease contracts. Check that your area is proportional to the percentage of building, not the rented sector. It is also wise to cap the CAM fees and negotiate a maximum rate of increase over the years. This prevents wild rent rises due to CAM.
Can you sublet or assign the contract?
When you rent for your business it makes sense to get more space then you need at the current moment. Most likely your business will grow, and you will need the real estate. Yet, until that happens, you could get some of your money back by subleasing the space or even sharing it with another small company.
Also, at some point, you could look into the opportunity of selling your business, which means transferring the lease contract to another entity. Ask your landlord if they agree to this.
Did you get the best deal?
Never assume that the first terms you get are the best. Take the approach of a Turkish merchant who will be offended if you just pay the first price and don’t negotiate. Make a list of all the provisions you don’t like in the contract, like the late payment penalties, the amount they charge for maintenance or the parking fees. Ask for a better option, while remaining realistic.
At Douglas Commercial we are your partners in finding the best solution for your business needs. Do you have trouble understanding legal terms of the lease contract or negotiating your rent? We are here to help.