02 Mar 02.03.2018 Start-ups: things to consider when signing a commercial property lease
02.03.2018 Start-ups: things to consider when signing a commercial property lease
It is important to check if the lease agreement allows subletting, because the lessee is still responsible for paying the rent if the business fails or relocates. An assignment or sublet clause in place allows the business to find someone else to cover the rent.
In order to eliminate the risk of losing the location when the lease expires, it is highly recommended for the lease to contain a guaranteed renewal or first option clauses.
A longer-term lease will be more appropriate for large established businesses, providing the stability within a certain location.
Repair and maintenance
It is important to be aware of obligations and responsibilities of the tenant and landlord under the lease agreement. Responsibility for the repair and maintenance of the premises for the duration of the lease is normally shared between landlord and the tenant. Therefore, the tenant should always negotiate restrictions to their repair obligations in order to avoid having sole responsibility for the repair and maintenance of the property.
A lease should address what improvements and modifications can or should be made to the property. A lease agreement should determine which party will have to pay for such modifications, who will own the improvements when the lease expires and whether the tenant is responsible for restoring the property to its original condition at the end of the tenancy. In order to avoid costly disputes and disagreements when vacating, a full and detailed factual record of the condition of the property should be prepared when taking occupancy (schedule of condition).
Negotiating Rent, Avoiding Hidden Costs
The tenant should be aware of the hidden costs that are not always revealed by the landlord when signing a lease: service charges, taxes, utilities, property insurance and other maintenance obligations. The tenant should make sure that lease agreement clarifies who is responsible for such additional costs.
Other items to consider
- Options for first refusal if more space becomes available
- Damage and destruction
- Building rules
- Escape clause (in the event you become unable to run the business)
Commercial leases can be confusing and complex. Thus, it is always advisable to seek legal advice before signing any commercial lease.