Are you about to sign your first commercial lease?
Take your time to review the contract carefully. Something you overlook now could become very important if something goes wrong in the future.
Here are six questions you need to consider when reviewing a lease:
1. Is compliance with the Americans With Disabilities Act (ADA) assured?
Because both tenants and landlords are considered responsible for ADA compliance, you want to get assurances that the property has been reviewed by a contractor or other expert and certified compliant. That could absolve you of liability if you’re hit with a lawsuit later.
2. What are the escalation clauses?
Are rent increases tied to something tangible, like the inflation index or the landlord’s actual operating costs? If not, you could see an unjustified increase in rent that sucks all your profits away.
3. What happens if the property is destroyed?
If a fire or other disaster destroys the property, are you still bound by the lease? Will your rent be abated? You don’t want to be stuck paying rent on a building you can use or unable to move to a new location to reopen.
4. What right do you have to renovate or expand?
It isn’t unusual for commercial tenants to renovate or expand a business. You need to know that you can make changes to the property to suit your business needs without major restrictions.
5. What are the renewal and purchase options?
When your lease is up, you don’t want to find yourself forced to move if business is booming. The lease should specify whether you have a purchase option or an automatic right of renewal. It should also specify what you have to do to exercise either of those options.
6. What are the agreement’s enforcement terms?
In the event of a dispute with the landlord, does the lease prevent litigation? If you’re bound to mediation or arbitration, who chooses the mediator or arbitrator? You want to avoid terms that lock you into a process that may automatically favor the landlord.
Whatever you do, don’t sign on the dotted line until you’re certain you understand everything you’re agreeing to and can live with the terms. Once you sign, you’re bound by those terms until the lease expires.