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How businesses can take some risk out of commercial leases

On Behalf of | Dec 25, 2023 | Real Estate |

A new commercial lease is a massive opportunity for a business. The space that they acquire can help them reach more customers or manufacture more products. However, taking on a commercial lease is a massive commitment that comes with significant liability – not just for the lease payments, but also additional expenses related to the property, including a pro rata share of the property taxes and insurance.

Business owners and entrepreneurs often worry about the long-term obligations that come with a new commercial lease. Some companies even delay opening a physical location or expanding because of the liability inherent in signing a new commercial lease.

How can a business owner or entrepreneur reduce the degree of risk assumed when signing a new lease?

They clarify and negotiate certain terms

Every commercial lease contains specific terms set by the landlord. Occasionally, prospective tenants can negotiate with landlords to alter some of those terms. For example, a startup may not be able to bankroll major repairs or maintenance expenses for a space. The party negotiating the lease may need to clarify what, if any, maintenance responsibilities pass to the tenant.

Other times, landlords perform facility maintenance and repairs themselves but pass those costs on to tenants via certain fees in addition to rent. If tenants will make less use of common spaces than other tenants in a shared facility, possibly because they won’t have foot traffic or employees, it may be possible to negotiate lower fees; however, some items such as insurance and property taxes are based on the square footage occupied by the tenant so those items may be less negotiable.

Additionally, the duration of the lease itself is sometimes negotiable. Commercial leases are usually multi-year commitments, but landlords may shorten the length of a lease in some cases to accommodate a new tenant. Tenants may also want to include terms in their lease that allow them to end the arrangement early.

Force majeure clauses can protect a business from financial liability or unpaid rent if the company must close due to factors outside of the organization’s control. Tenants can also sometimes negotiate lease assignment clauses that allow them to find a new party to take over the space if the company closes or chooses to downsize and eliminate certain facilities in the future.

Once all relevant parties sign a commercial lease, it becomes an enforceable contract. Negotiating for more favorable terms with the assistance of an attorney before that point can help protect those who own and manage businesses.