Commercial Leases: The Devil Is In the Details

When it comes to commercial leases, it pays to consider the details beyond the rent and to plan ahead before you contact the leasing broker about renting office space. Some of the issues that may come up during the proposal to lease process include:

Who is going to guarantee the lease?  These days, landlords are more apt to require a personal guarantee on a commercial lease. The days of businesses offering up the corporate entity as the guarantor of the lease are long gone. Owners of the business are now on the line for the full term of the lease and will be personally responsible for the lease even if their business goes under.

Defining Use of the Space:  You will most likely need to define how you are intending to use the space (retail, manufacturing, subleasing plans, etc.). Be prepared to disclose this information before you consider moving in. If you have made plans to sublet part of the space, perhaps one of the offices, to a friend or colleague with a separate business, you will need to disclose this to the landlord and find out if the landlord will accept this arrangement.

Term of the Lease and Commencement:  How long do you plan to stay in the space and when do you want to move in? Commercial landlords often have a set term, such as five years, as a minimum and will want you to commit to that time. He or she will also have a commencement time, such as 30 days, within which he or she wants you to move in.

Tenant Improvements:  If you need some changes or improvements for the space, the landlord may or may not be willing to pay some or all of those improvements. Many will be willing to meet you halfway, which means you will need to plan for the expense of building out the rental space and to scale back your plans if the build out will be prohibitively expensive. You can expect to see a per square foot allowance for improvements, such as $20 per square foot, beyond which you will either need to scale back or figure out a way to pay for the rest yourself.

Maintenance:  Who will pay for maintenance? Depending on the type of space you lease, you should expect to pay for the maintenance of the interior of your space (windows, walls, lighting, heating/cooling, etc.) while the landlord can be expected to pay for the maintenance of the exterior spaces of the building (roof, sidewalks, exterior paint, etc.). 

Insurance:  You will likely be required to carry a minimum level of insurance.

Utilities:  You and the landlord will negotiate utilities, which can include: phone, water, sewer, electricity, gas and garbage. Heating and cooling are also issues you will need to sort out with the landlord. Heating and cooling costs become more important in locations with more extreme weather.

Parking:  Is parking included? How much? If you have employees, this will be an important issue as you want to make sure you and your staff have an easy time of parking with minimal to no expense.

Initial Payments:  Don’t forget that you will typically need first and last month’s rent, plus a security deposit before you can move in.