Important Commercial Lease Terms to Familiarize Yourself With

Before you negotiate a commercial lease for your business, you need to understand the potential terms and clauses used in the lease agreement before and during discussions with a landlord.

Before reviewing the agreement, however, first make sure that you are listed properly as one of the parties. Though many people do not take a close look at this, it can be important in the future. For example, if a couple opens a business together, are both of their names on the lease? Is she represented by her married or her maiden name? Should the couple split, this could be an important point of contention. Also, if the company is a corporation or an LLC, the company name — and not your personal name — should appear on the lease since a corporation operates as a separate entity. You, as an individual, want to avoid liability. Review these points with your attorney.

It is also important to evaluate and discuss the length of the lease agreement, the cost of rent each month, and how often and by how much the rent can be raised. Remember, all terms in a lease should be open to negotiation.

Here are some important terms with which you will need to familiarize yourself:

Use Clause: A use clause is put in by the landlord and signifies how the space can and cannot be used. Review such a clause carefully and discuss it with the landlord. Because landlords want to protect their property, their interpretation of usage may infringe upon your ability to adequately conduct your business. Make sure that this clause is as fair to you as it is to your new landlord.

Exclusive Clause: An exclusive clause basically helps you to limit competing businesses from opening up next door. Of course, this is only a factor if the landlord owns the mall or other stores in the immediate vicinity. Often a larger mall will only allow two of a certain type of store and locate them at opposite ends of the facility or on different floors. In a smaller mall, you may have no direct competition. Depending on your type of business, there may be an exclusivity clause in the lease. This clause is particularly prevalent in retail leases. If the landlord has not included this clause, you may want to ask him to add one to the lease.

Premises: The premises stated in the lease need to be defined clearly. For example, if you are leasing a building, does it include the parking facility? If you are leasing an office in a large building, does this include a kitchen area or bathrooms? What is in your lease and what is defined as common area? To be clear, spell out exactly what the premises constitutes.

Security: Another major concern is security. If a clause is included in regard to securing your premises, evaluate it carefully. There are several questions to ask:

  • Who is responsible for securing the premises?
  • What does “security” constitute?
  • Is a security system installed? If not, will the landlord install one?
  • Does the landlord have access to your leased area?

The key to successfully leasing a commercial property is to review all of the possibilities with an experienced attorney. Ultimately, you want to avoid surprises. Try to ensure that all of your business needs are covered and that you can run your business comfortably for the term of the lease.