Before You Sign a Commercial Lease

things to think about before signing a lease

Commercial leases can be complex and often have fine print. At Equity Legal, we commit to helping San Diego residents keep their equity and businesses safe. To help protect you within your lease, we have compiled a guide of some important factors to consider before you sign a commercial lease:

Read the entire lease.

Write down any questions or any renegotiations you are considering as you read through the lease. Make sure that you fully understand what you are agreeing to. When can you terminate the lease? What is their liability policy on property damages, bug infestations, or maintenance issues? Are there any obligations (either for you or for your landlord) that you should be aware of? Watch out for hidden costs that are vaguely implied or written out in complex language.

Do your research.

Look up any words that you might not understand. Leases often use field-specific terminology that many people are unfamiliar with. Some common examples are CAM (Common Area Maintenance) and NNN (Triple Net Lease).

Negotiate the rent.

It is always in your best interests to try to get the lowest lease price possible. Ask your landlord about the pricing system used (price per square foot, estimated value, etc.) and see if you can lower the rate. If your landlord is unwilling to budge on the rate, ask about the possibility of a month of free/discounted rent. Before negotiating, consider how reasonable your requests are. The bigger your space or higher your price, the more likely it is that the landlord will be willing to negotiate.

Parking.

This is especially important in big cities like San Diego. Make sure that parking is included in your contract rather than being a separate cost. If it is a separate cost, use the parking spot in your overall lease negotiations – for example, you might concede to the original lease cost if parking is included for no added fee.

Consider your options with CAM.

You might request a cap on the CAM in order to prevent it excessive increases. You could also inquire about a ‘base year’ expense stop. In this case, the landlord pays for the full first year of operating expenses and CAM, and the tenant is thereafter annually responsible for expenses that exceed the base year amount. It is worth asking your landlord questions about these possibilities to find out more about what your options are.

Capital expenditures.

Avoid a commercial lease that places the responsibility of replacements/repairs to structural expenditures on your shoulders. If you cannot avoid paying for the costs, here are some options:

  • Compromise by adding a cap to repair costs (so that you are only responsible up to a certain amount).
  • Concede to repairing but not replacing.
  • Consider putting repair/replacement issues in a separate maintenance contract that you can negotiate with regards to specific maintenance issues.

Tenant improvements.

Sometimes, landlords have a budget set aside for tenant improvements. Be sure to ask about this before paying out-of-pocket for improvements.

Sub-leasing/Extending.

Rights to sub-lease or to extend are not always included in the lease agreement, but are often negotiable. Ask your landlord about implementing a right to extend as a safety net when your lease is up. Sub-leasing can also be an important measure to save money. If you need to leave the property before the lease ends, you can sub-lease to avoid losing money when your property is vacant.

 

For more information on how we can help you with a commercial lease, click here to learn how we approach contracts or contact us.

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