Wednesday, May 20, 2009

Commercial Lease Terms

Dear Property Manager,

I have decided to take my home-based book-keeping, and virtual assistant business and move it into a small office. My problem is I don’t know any of the “lingo” or what the clauses in the commercial lease contracts mean. Is there a place I can look or a list of the most common commercial lease terms?
Thank you for your help –

Madeleine Y.

Boone, NC

Dear Madeleine,

Here are some important terms with which you will need to familiarize yourself before signing your commercial lease, however, you will also want to work with a real estate attorney, who will assist you in getting the details of the contract right for you.

Use Clause: How the space can and cannot be used. Ask any question if this is unclear, and make sure that this clause is as fair to you as well as to your new landlord.

Exclusive Clause: Limits competing businesses from opening up in the same complex, or next door, if the landlord owns the other property/spaces in the immediate vicinity.

Premises: The premises should be defined clearly to be just the building, or space, or also include the parking lot or facility, bathrooms, kitchen, etc and spell out common areas shared by other tenants.

Parties: “Parties” refers usually to the landlord and tenant, (“lessor” and “lesee”) and should specifically name you in the contract. (Make sure to verify the names for correct spelling, etc.)

Term Clause: The length of your lease and specifically the starting and ending dates. This should begin after you have all necessary insurance and are ready to start business, not necessarily on the day the contract is signed.

Rent: Specifically states rent, and if it isn’t otherwise state should include improvements and maintenance costs if you are responsible, as well as rate increases or the “fixed rate’ cost.
Security Deposits: What amount you are required to give the landlord as a deposit. This is a safety measure for the landlord in case you miss a payment, or break an agreement, such as the state of the space, (maintenance needed) after your move out. If there are no issues, then this amount will be returned to you, unless otherwise stated.

Build-outs (Improvements and Alterations): If your new space will have to be customized to fit your needs, the lease should address this. The landlord may require an agreement about who does the design, contractors, timeline, payment, etc. This is important if your space isn’t move-in ready.

Insurance Clauses: Your landlord may require a specific kind of insurance (property, liability, rental interruption, and/or leasehold), to insure against things that are beyond their control (and sometimes yours). You will want to discuss your specific needs with a business insurance broker.
Other Clauses: Parking, Signs, Landlord’s Entry, and Security: There will (or should) be several paragraphs about whether you can put up signage, and the requirements there-of, as well as when and how the landlord can have access to your space, where you and your staff and customers can park, and the security of the property.

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.

Good luck and remember that your team (accountant, broker, commercial real estate agent, and attorney) will be vital to finding the right property and negotiating the right terms for you and your business. Make sure you heed their advice, or seek a second opinion if you are unsure. Signing a commercial lease is a big responsibility, and can ultimately lead to the success of your business.

If you would like to talk to one of our commercial property specialists in your area, please call our Boone, NC office at 803.578.7725.

Property Manager
Kuester: Boone, North Carolina

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