Avoid a Commercial Lease Entanglemen

Be sure before you sign

By Jenefeness Franke, MBA

Commercial leases can be complicated and cumbersome. Entering one lightly can put yourself and your business at risk of failure. If expanding your footprint with retail or office space is a possibility, there are several things you need to consider before doing so.

Educate Yourself

Commercial and residential real estate are different. There are different laws in place for protection and you should never assume that a commercial lease operates the same as a residential one. Research the neighbors, the traffic, licensing, zoning, and even maintenance before making a determination if the space is right for you and the future of your business. The more you know about the space, the better decisions you will be able to make. Also, join the Commercial Leasing 101 series in March 2023.

Negotiate the Terms

Every part of your lease is flexible – rent, term, improvements, subleasing, repairs, and even default. You should fully understand and agree to all the terms of the lease before signing. If there are words, phrases, or statements that you don’t understand, DO NOT sign. Ask for all terms to be changed into the language you fully understand and can abide by. Once you sign the lease, you are bound by it entirely. So, challenge everything BEFORE you sign the lease.

Keep Good Documentation

Write down every conversation, incident, and promise, and have the landlord initial them. Disputes are inevitable. But, good documentation can help resolve them sooner. After every verbal communication, send an email to summarize the conversation for your records. 

Read Over Everything

It is very important that you read before signing anything. Misinterpretation can be costly. The fine print is there for a reason and most times it is not for your protection. The most common mistakes occur when we don’t read the entirety of the documents and make assumptions from the portions we did read. Don’t be in a rush to sign. Take your time to read everything twice.

Do Not Breach

The quickest and easiest way to breach your contract is to stop paying. DO NOT ever stop paying your rent. This is a breach of contract and will result in heavy consequences. If you know you may have trouble paying in accordance with the terms, start communicating with your landlord and other interested parties as soon as possible to negotiate other possible solutions. This should occur as far in advance of the payment due date as possible. 

Know How to Escrow

When a dispute occurs between you and your landlord in regard to vital services, it could take time to sort out all the details. If you make the determination that you need to withhold payment for leverage, do it the right way. The right way involves a third party who will collect your timely payment in an escrow account until the dispute is resolved. There are steps to be taken when you put your rent payments in escrow. Know and follow the steps.

Protect Yourself

Did you know that your insurance agent can assist you with lease reviews? They have a responsibility to protect you from risks and expertise in identifying the potential for harm. Get them involved in the process beyond just receiving a quote. Having a second or third set of eyes to review your terms is imperative and can save you time and money.

Get AssistanceThere are organizations that assist with commercial real estate planning. Ventures Nonprofit has a pilot program to help entrepreneurs review, negotiate, process, and even sub-lease commercial leases. Also, there are several attorneys who specialize in real estate. You can get free assistance from the UW Entrepreneurial Law Clinic. And Fiscal Finesse provides strategic coaching to help you make the best-informed decision for your business growth.