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What to Consider in a Commercial Lease?
Signing a commercial lease can be a frightening experience for a small business owner since many terms in the contract might be unfamiliar. Before signing a lease as a commercial tenant, you should definitely consider:
- Are the terms of the lease are negotiable?
- Is the rent in line with the median rent for the neighborhood?
- What are the landlord’s responsibilities?
As for commercial landlords, you should keep an eye out for what responsibilities you will have, any restrictions that might be placed on you, who will be responsible for tax payments, and rights to renew and evict.
What Responsibilities Does a Commercial Landlord Usually Have?
Just as a residential landlord must ensure that a residential property is livable, a commercial landlord must ensure that the property he rents out to a business tenant is suitable for operations. This includes:
- Making necessary repairs to structural defects
- Complying with building regulations
- Ensuring that the tenant's business is not being disrupted by building issues
- Upholding the specific terms of the lease
Why Would a Tenant Want Exclusive Use of the Property?
Exclusive use means that the tenant wants to ensure that the landlord won't rent out space to similar businesses close to the tenant's location. If a competitor opens in the same building as the business tenant, then profits for the tenant will likely decline. Asking for a non-compete clause in the lease is a reasonable way for the tenant to prevent the above situation from happening.
From the commercial landlord’s point of view, however, having a limit on the type of tenants who he can rent out the property to in the future, might interfere with his future plans. Especially if more than one business tenant asks for exclusive use of the property. When negotiating with a tenant over exclusive use, the landlord can try asking for certain compensations in exchange for exclusive use, such as higher rent.
What Happens If the Tenant Sells or Transfers His Business?
Business ownership often changes several times over a business’s lifespan. If the tenant sells his business to another, a landlord should either ensure that the old lease is enforceable or create a new lease and treat the new owner as a new tenant. Signing a new lease is usually easier if the lease was with the business and not with the owner.
The tenant may also try to sublease the property to another. However, this is dependent on whether or not the landlord reserved a right to approve or disapprove such a sublease within the lease.
What Happens If the Business Is Unable to Pay Rent?
Commercial tenants unable to pay rent are treated similarly to residential tenants. In both cases, the tenant is usually given three-day notice to pay or quit the premises. If the tenant has not moved out within that the time period, then the landlord may file for eviction with the court and obtain an eviction order for the police department.
Do I Need a Lawyer for a Commercial Lease?
Commercial leases often have complex clauses and terms. Seeking the help of an experienced business lawyer to look over or negotiate a commercial lease is recommended as a good lease can help lower the chances of you needing to go to court to settle any difference you may have with either your tenant or landlord.
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Last Modified: 05-28-2014 10:29 AM PDT
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