This is the 6th and final Part of a series of articles about leasing commercial space for your business. In the previous installment, we explored rent. We found out there is more to rent than one might originally think. Today we talk about assignment and subletting, alterations, remedies and my favorite – the roles of the real estate broker and attorney.
ASSIGNMENT & SUBLETTING
Almost every lease contains restrictions on assignment (transferring your lease to a third party). As a tenant, you want to make sure those restrictions do not present unreasonable barriers to implementing your exit strategy from your business. For example, if you plan to sell your business during the term of your lease, you want the landlord to accept your purchaser as the assignee. Does the landlord have the right to withhold consent in its absolute discretion? Or does the lease provide the landlord cannot unreasonably withhold its consent? The language could mean the difference between your business sale going through and failing. Also, depending on the language in the lease, it might make a difference if you sell assets, as opposed to your corporation’s stock.
In addition to provisions addressing initial build-outs, lease agreements generally prohibit alterations without the landlord’s written consent. If you anticipate needing changes to the premises in the future, include language in the lease whereby the landlord consents to such alterations. Be as specific as possible.
Every lease affords the landlord remedies. It is only fair that if the tenant does not uphold its end of the bargain, the landlord should be able to recover its damages, as well as possession of the property. The key to remedies for the tenant is to make sure they are reasonable. You want some opportunity to cure defaults (which include more than just the failure to pay rent on time). In addition, pay attention to what the lease provides as far as landlord liens. If you plan on obtaining a business loan, make sure the landlord’s remedies would not interfere with your ability to grant your lender a first priority security interest in your assets (which the lender will require).
RULES & REGULATIONS
Sometimes leases include comprehensive rules and regulations. These can range from not permitting noxious odors to emanate from your space, to dictating where you place your trash. Check to see if they would unreasonably inhibit your business.
ROLES OF REAL ESTATE BROKER & ATTORNEY
Real estate brokers and agents know the local market, can help find suitable available space for you, save you from paying too much and help negotiate major lease terms. Residential and commercial real estate are two different animals. Make sure you work with an agent who has experience in and knows the commercial market.
After determining your business’ circumstances and goals, an attorney will draft or review, as well as negotiate, the lease agreement to make sure it meets your needs. The attorney will also educate you on the meanings and consequences of the various lease provisions, and help protect your interests. Sometimes it is what the lease omits, rather than what it includes, that can represent the biggest challenges for you. While you make the final decision as to what is and what is not acceptable in your lease, an attorney will help you make the best educated decisions possible.
Typically, the landlord pays your broker’s commission. You will be solely responsible for compensating your attorney. You should consider your attorneys’ fees as an investment, rather than an expense. A modest investment now could save you a lot of pain and money later. In other words, look at the value your attorney provides to you, rather than just the dollar amount paid.
I have discussed quite a few topics in this series of articles. I hope I have opened your eyes as to the potential advantages and pitfalls you can face when entering a commercial lease. However, I have only touched the tip of the commercial lease iceberg.
I would be happy to assist you in finding commercial space and negotiating a fair lease which meets your needs. Call or email me today so that I can assist you in finding the right commercial space with a fair lease that meets your needs. You can reach me at 410-544-2931 or firstname.lastname@example.org. I look forward to working on your behalf.