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Leasing a commercial space instead of committing yourself to owning commercial real estate can be an excellent move. But there are fewer tenant-friendly laws when it comes to commercial leases. In many states, commercial leases are not covered under consumer protection laws that give residential tenants a large degree of protection from unscrupulous landlords. It's assumed that commercial leases are contracts between knowledgeable business people, and so there's less need for state regulation of such leases.

So, before you lease space for your small business, it's critical that you carefully examine every aspect of the lease and renegotiate unfavorable terms before you sign it. And, depending on your experience and skill, it might be a good idea to get help from a business or real estate law attorney to help you negotiate the best deal.

Some Important Lease Provisions

Your commercial lease should be in writing and should include the following details:

• How much rent is due, including any scheduled increases, which are commonly called "escalations." You'll want to know the going rate for space in the neighborhood before you begin negotiating. It also helps to let the landlord make the first offer, and ask for a lower rent than you think you can get initially. Escalations should be for specific dollar amounts or tied to a known method of calculation, such as a cost of living index.
• How long the lease runs, which is known as the lease "term," and it should cover when it begins and under what conditions you can renew the lease. A shorter lease means less commitment from you, but also less predictability for the long run. If location is very important, for example, if you have a retail store or restaurant, you may want to opt for a longer lease. You can always attempt to renegotiate lower rents or improvements as time goes on. If you have a month-to-month lease, you'll want to make sure the landlord has to give you as much time as possible when terminating the lease.
• Who's responsible for paying for utilities, such as phone, electricity and water. Utilities could be included in your rent, or you may have to pay the service provider separately.
• Whether you'll be responsible for paying any of the landlord's costs in maintaining the building, property taxes and insurance premiums, and if so, how much you'll have to pay.
• The amount of any required deposit, and whether you can use a letter of credit instead of cash.
• A description of the space you're renting, square footage, available parking and other amenities, like a common reception area or elevator, and whether you can spread to unused areas of the property if you need to expand.
• A detailed listing of any improvements the landlord will make to the space before you move in. Your landlord may be more willing to make lots of expensive improvements if you're signing a longer lease.
• Any statements made to you by the landlord or leasing agent, such as amount of foot traffic, average utility costs, compliance with the Americans With Disabilities Act (ADA), which requires that buildings open to the public be handicap-accessible, and restrictions on the landlord renting to competitors, such as in a shopping mall, which is commonly called a "non-compete clause."
• Assurances that the space is zoned sufficiently for your type of business. You'll also want to check out this information with local zoning authorities.
• Whether you'll be able to sublease, that is, rent the space to someone else who will pay you rent, or assign it, that is, another person steps into your shoes and pays rent to the landlord. You'll want to negotiate the ability to sublease or assign so that, if you need to, you can move to another space quickly and without two rent obligations.
• How and when either you or the landlord can terminate the lease and the consequences, such as forfeiture of any deposit paid.
• Whether any dispute between you and the landlord can go to mediation or arbitration, which could benefit you because these methods of dispute resolution are less formal, less expensive, and much quicker than going to court.
• Whether the lease and zoning laws allow you to erect a sign for your business that's visible to the public, maybe on the building or in front of the property.
• Whether "build-outs" are allowed, which are improvements, modifications, or additions made to the property at your request and to your specifications, and who has to pay for them.

When it comes time to renegotiate your commercial lease, you'll want to back-up your reasons for a lower rent, more space or improvements with hard facts such as lower foot traffic than represented, a downturn in your industry, and decreased rent in the neighborhood. Some landlords will even be willing to take a percentage of your sales instead of a flat rental fee when economic times are slow.

As a tenant, you have far more leeway when negotiating a commercial lease than with a residential lease, which is one reason why having a lawyer to represent you in negotiations is so important. A lawyer can also research zoning laws and local ordinances and fill you in on local real estate market conditions and customs.

Questions for Your Attorney

• Do I have to wait for my lease to expire if I want to renegotiate the amount of rent?
• Can anything happen to me or my business if my landlord fails to pay property taxes?
• My landlord said he got a zoning change or variance that permitted my kind of business on his property, and I signed a lease. I just found out he never got the variance. What can I do?

Related Resources on lawyers.com^sm

- Real Estate Lease - Commercial
- Renter's Inspection Worksheet
- Sublease Agreement
- Tenant's Notice to Terminate Tenancy
- Agreement to Cancel Lease
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- Leasing Equipment for Your Small Business
- Financing Your Small Business with Loans
- Find a Find a Business Law Lawyer or a Real Estate Law Lawyer in your area
- Visit our Business Organizations Message Board or our Commercial Leasing Message Board for more help

Related Web Links

- Glossary of Commercial Lease Provisions