You’ve formed your business with the Secretary of State, completed all of the necessary filings and (hopefully) executed an Operating Agreement—so, what’s next? If you plan to operate your business out of a commercial space, locating the right real estate and negotiating a lease can be a daunting task. Commercial landlords tend to be experienced in their field, and may present potential tenants with a “landlord-friendly” (read: one-sided) lease agreement. Hiring a lawyer to assist in reviewing and negotiating your commercial lease can help level the playing field while also streamlining the process. Below are two key reasons why it is critical to consult an attorney before signing any lease agreement.
1. Commercial Leases Are Not the Same As Residential Leases
You’ve probably encountered a residential lease during your lifetime. As the name suggests, residential leases deal with residential properties and contain provisions that apply to daily living rather than business use. Residential leases are markedly different than commercial leases, as they legally must afford the tenant greater protections. Further, residential leases are much shorter in length of time (generally one year or less). Conversely, state statutes do not require commercial leases to provide the same level of protections to business tenants, and they generally start at a length of five or more years. What does all this mean? There is a lot on the line when it comes to commercial leases and the wrong agreement can set your business up for failure before you even open your doors.
In many commercial leases, the landlord will require the tenant to pay for “CAM” charges—which stands for Common Area Maintenance expenses. CAM expenses generally include: common area maintenance, property taxes, property insurance, parking lot maintenance, etc. It’s important to know how these charges are calculated and whether they are representative of the square footage occupied by you (the tenant). The responsibility of repairs and improvements on behalf of the tenant tend to be more extensive in a commercial lease. Further, you may need to do some improvements to the space so that it conforms to your business (often referred to as a “buildout”). A new hot-button provision for a commercial lease to contain is a governmental restriction provision (aka a “pandemic provision”). If the global pandemic has taught business owners anything, it’s to be prepared for the worst. A pandemic provision can be negotiated by a lawyer to provide you with partial rent forgiveness for a specified period of time during a state or nationwide health crisis. Finally, let us not forget the rent component of a commercial lease. As noted above, the base rent in a commercial lease tends to be calculated differently than in a residential lease and may increase by between one and five percent (1-5%) for each year of the lease. Bottom line: commercial leases are lengthy and, unlike residential leases, require extensive negotiations.
2. Lawyers Are Experienced Negotiators—Let Us Do the Work
Given the high stakes of a commercial lease and long-term implications on the success of your business, it’s important you not be pushed into any disagreeable terms. Hiring a lawyer to review and negotiate your commercial lease will free up time to focus on your business. Most commercial landlords hire a lawyer to represent them and draft the lease, and it is pertinent that tenants do the same. As mentioned above, if the space requires a buildout to conform the area to your business plan, a lawyer can help negotiate the buildout phase and potentially work out a deal with the landlord for either free or reduced rent during this period.
So, now that you’ve heard the two key reasons why you should hire a lawyer to review your commercial lease, the question is at what point should you involve an attorney? At Marti Law Group, we prefer to get involved with our client’s commercial lease negotiations before a Letter of Intent (or “LOI”) is signed. The LOI is essentially a non-binding preliminary agreement to several key provisions of the lease. Despite the “non-binding” component of an LOI, often times an attorney is brought in after the LOI has been executed, severely weakening the bargaining position of the tenant. So, in other words, bring in an attorney early and before you sign anything!
If you’re looking to lease a commercial space for your business in Connecticut or Massachusetts, please contact us today at: firstname.lastname@example.org 860-552-7770.