Monday, July 28, 2008

How to Lease Commercial Property

Do you have a great small business idea? Financing to back it up? Then let's get out and find some commercial property for you to lease. If you don't know the first thing about the written agreement that you'll have to enter into with your landlord to govern the terms and conditions of your use of the real estate, then its worth your five minutes here - and a few hundred dollars to a lawyer - to help you either draw up an agreement, or review the one that is offered to you to sign. You'll also have to do a little bit of homework, technically known as "due diligence" to make sure that the site is appropriate for what you are planning to do.

Before you even get to the point of drawing up paperwork, be sure to check governmental regulations to make sure that you'll be allowed to have a commercial operation at the location and/or that the type of business is appropriate for the street on which it would be sited. For example, some grocery outlets may be considered to be "Neighborhood Commercial," if they are within a certain square footage, while others are instead full-blown "Community Commercial," which may not be permitted near a residential neighborhood. Size, number of parking stalls, traffic impacts and more all go into the consideration.

Once you determine for yourself that the area is a good location for your business (and note that this is your responsibility, and not your broker's or landlord's), then we can start talking about the lease agreement. There are 5-6 primary issues that MUST be covered in a lease:

(1) Allowed use - be crystal clear that you and your landlord are thinking about the same thing; (2) The term of the lease - do not get stuck with too much or not enough time (and an unexpected move);

(3) The annual/monthly cost of the rent and where to pay - be sure you know to where your rent check should be delivered and watch out for escalation clauses which may cause your rent to increase for repeated late payments;

(4) Maintenance costs and responsibilities - who snowplows the parking lot? are there hidden costs for parking in general? How much extra may the landlord charge in addition to rent?

(5) Rent escalation - how much, if any, does the rent increase each year? On what is the rental increase based?

(6) Will the landlord require you to be open certain dates and times? This is common in a shopping mall or similar complexes. You could have less flexibility.

(7) One last consideration - who pays for tenant improvements and who keeps them when the lease is over?

Keep these issues in mind as you consider various potential properties on which to locate your small business. Do not try to negotiate a lease by yourself without legal counsel. You could end up paying many times more in attorney fees down the road in an enforcement action, if you don't invest a relatively small amount up front on the agreement. For a more detailed overview of the commercial leasing process, click here. Best of luck in your endeavor!


  1. Our law, in Moldova I mean is very different from you re law... but it is very good to make a comparative schedule between this 2 laws... it is interesting...

  2. my blloger...

  3. Hi myky_222k, it must be very interesting to compare law differences between the 2 countries. Thank you for the comment.