When you rent office space, you'll typically have to sign a lease detailing your rights and responsibilities as a tenant. However, commercial leases are vastly different from the ones used to secure residential spaces. Here are three things you need to know about commercial leases to help you fully understand what you're signing up for.
There's No Such Thing as a Standardized Commercial Lease
The first thing to know about commercial leases is they're not standardized, which means each rental company may use a form specifically developed for them or create a new contract each time they rent to someone. This is both an advantage and a drawback.
A non-standard lease means the contract can be customized to fit the needs and preferences of both parties entering the agreement. For instance, you could negotiate which utilities the landlord pays for and which ones you must take care of every month. This lets you fine tune the contract to suit your specific business.
On the other hand, a non-standard contract also means it may be filled with hidden clauses that could cost you money or hurt your business. For instance, your rent may be based on the percentage of space you're renting in the building. If the landlord tears down or closes part of the building, your rent may increase to reflect that you're now using more space even though you didn't actually rent another square foot.
It's important to thoroughly read the contract before signing to ensure all of your negotiated items are included and there aren't any hidden clauses that could hurt you.
There Aren't as Many Consumer Protections
A second issue is there aren't as many consumer protections in place for commercial leases as there are for residential ones. In California, for example, landlords must provide residential tenants 24 hours notice before entering the home or apartment. However, this rule doesn't always apply to commercial tenants. In fact, your lease may have a clause stating the landlord can enter the property at any time without notice. This can be a concern if your company deals with sensitive data or patient privacy is critically important.
The good news is commercial landlords are typically reasonable people, and you can negotiate issues not protected by law into the contract. For instance, you can ask the landlord to eliminate the unlimited entry clause and add a 24-hour notice requirement.
Other protections you may need to negotiate include:
- What happens when habitability issues arise (e.g. pests, leaking roof)
- Rental rate increases and associated notifications
- The security deposit amount and the conditions it will be fully refunded
- The time allowed to move after being served a notice to vacate
- The circumstances under which the lease can be canceled by either party
It's a good idea to talk to a real estate attorney about the type of protections you should seek in your commercial lease to avoid problems.
It May Contain a Mandatory Arbitration Agreement
It's not unusual for landlords and tenants to get into disputes about the property or the lease. However, you may be limited on what steps you can take to resolve that dispute. In particular, some landlords may place a mandatory arbitration clause in your lease that requires you to settle legal issues outside of court.
Litigating a case in court takes a lot of time and money, so it's understandable why landlords would want to use less costly means to deal with disputes. However, arbitration is not always the best forum for every issue. If your case involves complex applications of the law or significant monetary losses, civil court may be a better option for recovering damages, for instance.
If the lease does include a mandatory arbitration clause, see if the landlord is willing to modify it so you have other options available to you if certain conditions apply (e.g. your business loses over a certain dollar amount of money).
For more information about commercial leases or to rent a property for your business, contact a leasing agent.