Read Carefully your Commercial Lease

During the course of my practice I am often surprised about how many business owners are willing to enter into a commercial lease without the assistance of an attorney. Unless you are in a home-based business, chances are that you will enter into a lease for your business. Other than payroll, most likely your lease will be one of your highest monthly expenses that you will have on your business. Commercial leases are complex contracts typically drafted by attorneys who specialize in drafting these documents. It is unlikely that a lay person would understand the language and clauses contained in a commercial lease.

 The landlord’s objective is to generate income from the rental of the commercial space from the tenants. Therefore, it is important you understand ALL the charges that you will have to pay with your monthly rent. For instance, in addition to the “base rent”, you may have to pay CAM or community association management charges, sales tax, insurance, property taxes, percentage of gross sales and other expenses. Another item you should know before signing the lease is the term of the lease and the options to renew the lease. This is a very important item if you are planning to remain on the same location. Last but not least, you need to find out whether or not you have to sign a personal guarantee to enter into the lease agreement. This is very significant and many business owners miss this until it is too late. If you are considering entering into a commercial lease agreement, I recommend you get a consultation with an attorney with experience in reviewing commercial leases. Otherwise, could be one of your costliest mistakes if you decide to “wing it”.

Let’s say for example that your monthly lease payments after all the charges add up to $2500 per month and the lease has 36 months remaining before the next renewal. Upon signing this lease agreement, you just assumed a $90,000 debt with a personal guarantee! I often interview clients wanting to “get out” of the lease after their business goes south. Typically, there are not too many exit clauses on a commercial lease agreement. Keep this in mind as you move forward and good luck with your business!