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Real Estate · April 29, 2021

QUESTIONS TO ASK BEFORE SIGNING A COMMERCIAL LEASE

Pen in hand, you stare at the commercial lease sitting in front of you. You conceal the trembling in your writing hand, but little beads of perspiration start to appear on your face.

Yes, deciding whether to sign a commercial lease is one of the most stressful decisions you can expect to make. Fortunately, you can avoid the hand trembling and most of the sweating by coming to the contract table with all the information you need to make a sound business and perhaps personal financial decision.

According to the property management team at Utopia Management, here are some important questions to ask before signing a commercial lease.

How Safe is the Location?

The safety question has several implications. First, you want your business to be in a safe location to attract loyal customers. Second, you cannot expect to recruit the best talent if your store or office is located in a high-crime neighborhood. Third, you have the issue of loss prevention. Even if you want to lease an office space, if it is located in an unsafe area, you run the risk of property loss and/or damage.

Does the Building Offer High-Quality Technology Infrastructure?

You might get the opportunity to sign a lease for a space in an older building that can save you a considerable amount of money. However, older buildings tend not to include the technology infrastructure most businesses need to succeed. Even a newer building can present some technological limitations. Before you sign a commercial lease, determine whether the space meets your technology needs.

Are There Annual Rent Increases?

Many commercial leases include a clause that automatically increases rent every 12 months. Unfortunately, some of the language found in commercial leases concerning annual rent increases come in the form of small print. To avoid falling into the annual rent increase trap for a commercial property, make sure to add an option to renew your lease at the end of every 12 months. The lease renewal option is also important in case your business outgrows its current commercial space.

Is There an Out Clause in the Lease?

If for some reason your business no longer can compete in its current commercial space, you want to be able to find another location that accommodates your rapidly changing business needs. An “out” clause written into your lease gives you the right to terminate the lease without having to pay a financial penalty. Most out clauses require commercial tenants to give plenty of advanced notice to the property manager.

What Does the Lease Cover?

The money that you pay to lease a commercial space should cover much more than just your legal right to conduct business in a commercial space. The owner of the commercial property should be responsible for some, if not all of the utilities, as well as pay for cleaning and trash pickup services. Less frequent expenses such as snow removal in winter and storm damage repairs in summer should be the financial responsibility of the commercial property owner as well.

Who is Responsible for Repairs and Maintenance?

When you rent a house or an apartment, the property manager should take care of repairs and maintenance. This is typically not the case for commercial property owners, although you can negotiate terms that place some of the legal responsibility for repairs and maintenance on the shoulders of the commercial property owner. Carefully read the lease to determine who is legally responsible for taking care of repair and maintenance issues.

Can Customers/Clients Easily Enter the Property?

Outside of getting price gouged, nothing turns off a customer more than having a difficult time entering a commercial property. You want to ensure that your clients or customers have easy access to your business. The property manager for the commercial space you want to lease should provide you with an accurate count of the number of vehicles that pass by the commercial space every day. The combination of operating in a high-traffic area and allowing your customers easy access to the commercial property is good for business.

Are There Enough Parking Spaces?

Let’s say your customers have easy access to your commercial property. However, you do not have enough parking spaces to accommodate the number of customers that want to do business with you. Lack of parking spaces is an especially big problem for businesses that operate in strip malls. The best way to determine whether your commercial property has enough parking spaces to accommodate your customers is to visit the commercial property on different days and at different times to see if any parking issues arise.

Who Owns the Building?

This question is important when it comes to resolving issues like repair and maintenance requests. If the owner of a commercial building that you have expressed interest in lives out of town, you might find it difficult to get issues resolved promptly. Ask other tenants in the building about the response time of the owner. Preferably, you want to deal with a local property manager that is on call 24 hours per day, seven days a week.

The Bottom Line

Using a property management company like Utopia Management especially for your first commercial lease is recommended. An experienced professional will point out to you specific questions and concerns to address to negotiate the lease. Because commercial property leases tend to be longer and more complex than residential leases, you must get all your questions answered before signing on the dotted line. Failing to understand every legal implication of the language written into a commercial lease can set you back a substantial amount of money.