Commercial leases are serious commitments for businesses; typically, they last for a number of years and are the second largest expense after payroll. If not negotiated properly, a commercial lease can hamstring your company’s ability to expand or put you in a position of having to pay for renovations you think should be provided by the landlord. Sometimes, a bad lease can even lead to litigation — something you want to avoid, especially if you are a startup.
Here are 7 common mistakes you need to avoid when negotiating a commercial lease:
- Lack of enough lead time.
To avoid having to pay rent on a space you are not ready to occupy, be sure you calculate enough lead time to get up and running in a new space. Not only will you need time to negotiate your lease, you will also need to allocate enough time to fit out the space to your specifications. The typical timeline for commercial spaces less than 10,000 sq. ft. is 6-12 months; for larger spaces, it’s 9-18 months.
- Lack of planning.
Failing to devote enough lead time to planning your space can negatively impact your business and your budget. You will need to take into consideration any specialized needs of your business, your technology requirements, future growth or downsizing, etc.
- Lack of expertise.
Commercial leases are generally drafted by landlords who do not necessarily have your best interests in mind. Commercial lease terms are highly specialized and not like other contracts you may be used to seeing. Be sure to consult with legal counsel to make the best possible deal on your new space.
- Lack of due diligence.
Before signing a commercial lease for your new space, be sure to perform a thorough investigation to be sure the building can accommodate your business needs. Is it zoned to permit your type of business? Are there any liens on the building or pending litigation? Are all the electrical, plumbing, and HVAC up to code and sufficient for your needs?
- Lack of understanding of lease provisions.
The provisions in a commercial lease are complicated and you cannot assume anything. There are multiple types of rent structures and even something that you might think is straightforward — like the start and end date under “Term” — can hold hidden dangers. For example, does the term start when you sign the lease or when you move in? Can the Term be ended early or extended? You also need to be sure the lease spells out who is responsible for renovations, customization, maintenance, etc.
- Lack of future consideration.
Just like you plan for the future of your business, you also need to plan for the future of your business space. Does the lease allow for growth? contraction? subletting? assignment to another company that buys your business? Dial in some future thinking into your lease negotiations.
- Lack of market knowledge.
The state of the commercial real estate market in your city will have some bearing on how much leverage you have in your lease negotiations. Be sure you know current market conditions and whether or not your landlord is hungry for your business.
When you are facing any type of business dispute, you need an experienced Arizona trial attorney to obtain the best possible result. Contact Williams Mestaz, L.L.P., at (602) 256-9400 to speak with us about your case.