Signing a commercial lease is a big step for a small business owner. The location of your brick and mortar shop and the terms that you agree to in the lease can literally make or break your business. Here are some pointers to consider before leasing commercial property:
- Pay attention to the anchor lease. Having a big box store in the same shopping center as you can generate a huge amount of traffic. However, many landlords are so desperate to get a Target or Costco into their building that they offer them control over the other tenants as well. Imagine being restricted from posting signage in your area or not being allowed to have a sidewalk sale because your anchor store doesn’t approve. Look into the terms on the anchor lease and how it impacts other tenants before leasing commercial property shared with a big box store.
- Make sure your landlord discloses any side agreements. Once again, this often pertains to anchor leases. Imagine you’re leasing retail space in a mall shared with a big chain sporting goods store. The landlord might have a non-compete clause with the anchor store and if your store decided to offer a line of sports memorabilia, you might not be aware of this restriction until you received a cease and desist letter, or worse, get into legal trouble.
- Review shared fees. Most commercial leases include surcharges for cleaning and maintenance in the shared spaces. If your business is small and has a minimal impact on the wear and tear of the space, but the business next to you contributes most of the litter and degradation of the area, it is not fair for both of you to pay the same maintenance fees. You want to see maintenance fees that are determined by square footage or even the nature of the business, if it is in your favor.
- Pay close attention to the landlord’s exposure. Many times the leases for commercial real estate development stipulate that the landlord is only responsible for damages up to the equity they hold in the shopping center. That means, in the very common scenario that the mortgage on the space is greater than the value of it, the landlord holds zero liability, even if they lose a lawsuit.
- Make sure the rent is determined in the renewal option. It is beneficial to include a renewal option when leasing leasing office space or retail space, so you aren’t forced to vacate at the end of the lease if it will have a negative impact on your business. However, a renewal option is worthless if it says the rent will be negotiated at the point of renewal. If the landlord wants to edge you out, and they have the option of demanding two times the current rent, you may as well not have a renewal option at all.
Do you have any experience leasing commercial property? Do you have any tips or lessons learned that we didn’t include? Please add them in the comment section below!
