For many new business owners, one of the first steps in “starting a business” is acquiring the physical space where the business will be located. This can be a big step that involves a significant investment of time and money. Before you commit to a commercial space for your new business, it is important to understand the nature of commercial leasing and how it differs from typical residential leases. Failure to do so can greatly affect the ultimate success of your business.
Commercial Leases Compared to Residential Leases
Commercial leases differ from typical home or apartment leases in several important ways. Commercial leasing typically involves much bigger and more expensive spaces, and the leases often extend for periods much longer than a year. Commercial leases may also include clauses that address certain expenses unique to the business, such as extensive utility use, and there are often express restrictions on how property can be used.
Since businesses vary greatly, it is hard to find standard commercial lease forms. Instead, landlords often use real estate attorneys to customize a lease to the specific needs of the landlord and business tenant. This means that commercial leases must be carefully reviewed for accuracy and detail. Careful attention is also important because commercial tenants are often not provided with the same protections that states and local municipalities grant to residential tenants. For instance, while your city or county may closely regulate the requirement and use of security deposits in a residential context, these restrictions may not apply for commercial use.
What to Look for in a Commercial Lease
Before signing a commercial lease, it is important to carefully evaluate whether it contains provisions that you are willing to be bound by and whether it contains the necessary clauses to be legally enforceable.
Turning first to the preferences of a commercial tenant, it is important to make sure that the basics of the lease work for you. For instance, you must make sure that you can afford the monthly rent that you will be required to pay, and that you are willing to abide by the full duration of the lease. While a long-term lease, such as 10 years, may initially seem appealing because it gives you the security of knowing you will not lose your commercial space, it also means that you are bound to that space if you later find that it is ill-suited for your customer base, or not big enough for your needs.
Other terms to consider include how and where the lease allows you to market or promote your business. You may wish to confirm that you are allowed to display signs, play music, or use sidewalks for promotional purposes. Additionally, if you anticipate that your business may be negatively affected by nearby competitors, you might want to include stipulations preventing your landlord from renting nearby spaces to others in your industry. Finally, it is important to remember that a commercial lease does not unilaterally grant you the ability to make modifications to your business space as needed. Instead, you will likely need to include authorization for modifications in the lease, or spell out specific modifications to be made.
In addition to these practical matters, there are certain components to a lease that must be included in order for it to be legally enforceable. A failure to pay attention to these details could result in difficulty enforcing your lease down the road. You will want to make sure your lease includes:
- The names of all parties, including the landlord and tenant;
- A sufficient description of the property that is being leased;
- The length of the lease; and
- How and when rent is to be paid, including the total amount and any anticipated scheduled increases.