2 important terms to negotiate in a commercial lease

On Behalf of | Feb 26, 2023 | Commercial/Residential Leases

Some of the biggest and most successful businesses currently operating in the United States didn’t start in commercial spaces. Even Google first started in a garage. People trying out a concept need practice to hone their skills and time to generate sufficient revenue for full-scale operations.

Entrepreneurs often start small and then scale up their operations as resources allow. Eventually, someone producing a unique product or importing items for sale may need a retail facility or industrial space to expand their operations. Renting is often the better solution than buying property until a business is truly established.

A commercial lease is often an important resource as owners strive to legitimize a small and increasingly successful business. Entrepreneurs need to review commercial leases carefully and may want to negotiate two terms in particular for their protection.

1. The duration of the lease

The average commercial lease lasts for between three to five years, although some landlords will offer short-term leases for new businesses. Making a multi-year commitment as a developing organization can be a challenge, as it may leave the entrepreneur on the hook for years of rent if the company fails.

Some landlords might agree to reduce the duration of the lease to better accommodate a startup’s needs. Other landlords might agree to include at least a force majeure clause that allows for the cancellation of the lease if uncontrollable factors, like natural disasters, force the business to cease operations.

2. The facility maintenance costs and support

There are numerous ways in which a landlord will address the cost to maintain a facility. Sometimes, the lease will integrate a flat rate for such costs. Other times, when there are multiple tenants sharing some spaces like parking lots, landlords may assign individual tenants a specific percentage of the common area maintenance (CAM) fees.

Tenants who know they will not have much foot traffic in their early operating days or few employees making demands on those shared resources may be able to negotiate lower maintenance costs. Operators without much support staff may want to renegotiate terms in the standard lease that would pass certain maintenance responsibilities back to them as the tenant.

Exploring different means of making a commercial lease more beneficial will help a growing business take some of the risk out of a real estate transaction. It’s also important for entrepreneurs to keep in mind that they can always ask for legal guidance when they are concerned about protecting their interests and the interests of their company.