For small business owners, deciding on a commercial space is a very important matter. This is particularly true of companies that require customers to visit the place of business. There are important issues to be aware of when negotiating and agreeing to a commercial lease.
Length of the Lease
A commercial lease is simply a contract between a business and landlord for the rental of space in a building. The length or duration of the lease is negotiable and may be just about anything. However, agreeing to a very long lease term can pose risks to an owner of a business.
Perhaps the biggest concern for business owners is the risk of the business failing. Incorporating was most likely done in order to avoid personal liability for the actions of the business. However, if a business is newly formed, it is common for landlords to require owners to make a personal guaranty before leasing the space. The result is the effective loss of personal liability protection. A very long lease term, coupled with a personal guaranty on the lease, puts at risk significant resources of the business owner.
This risk is further enhanced by the fact that landlords in commercial leases can usually invoke the acceleration clause and request the entire unpaid rental amount for the remainder of the lease term. Owners should request that an escape clause in the event the business fails be included in the lease agreement, especially if the lease term is a long period of time. Alternatively, it is advisable for new or less stable companies to enter into shorter lease terms with renewal options.
It is very likely that rental space will need to be improved or altered to best fit the needs of the business. Prior to entering into a lease agreement, it is important for the business owner to mention any improvements that he or she may wish to complete in the future. Keep in mind that any improvements may require the prior written approval of the landlord. Alternatively, it may be beneficial for the tenant to allow the landlord to design the improvements, particularly if they are of a large scale. If you allow the landlord to do this, be sure that you have the ability to review and approve the plans.
What is the Space Zoned For?
Before entering into a lease agreement, it is important to check all zoning ordinances and verify what the property is zoned for. Property may be zoned for the following uses:
- Residential (single or multi-family homes);
- Commercial (retail or offices);
- Industrial (manufacturing); or
- Agricultural (farming).
Understanding what the property is zoned for is important because it will regulate activities conducted at the property, such as noise levels or parking. The type of business you have will determine whether a particular property is zoned appropriately for your company.
Small Business Attorneys
The Philadelphia Small Business Law Center can help you with all aspects of your company. If you are negotiating a commercial lease, or have issues related to one you are already committed to, contact us today. We want to put our expertise to work for you.