The Office Lease Is Perfect in Every Way Print

Before you lease your first office or storefront for your business, there are a few things to consider, as we discussed last week. Just to review, aside from the age-old adage "location, location, location," other factors to think about include enough parking, anticipated staffing levels, and potential future expansion. Not being swept up in the excitement of the moment was something I hammered home. Finding the ideal location for your company should be a long-term priority, not a quick fix.
Signing a business lease is the most crucial step, and we'll go over it this week (insert dramatic music here). Not reading the agreement is a common mistake made by entrepreneurs when leasing business space. Do not bother to read the small print. There is an abundance of fine print in a lease.

Refute my claims? For the benefit of the naive, I will tell you the real tale of my friend Homer. A commercial office unit was leased to Homer for two years. Signing the lease and agreeing to personally guarantee payment as the business owner, Homer vowed to obey its terms. Everything ran smoothly when Homer moved in until the end of the two-year lease term. When Homer finally read the lease, he realized it had been a huge mistake.
Almost halfway through the two-year lease, Homer made the decision to move out. However, when he provided the landlord what he believed to be the standard 30-day notice, he found out that the lease had automatically renewed for another two-year term at the 60-day mark. To rephrase, Homer was unaware that he was obligated to provide the landlord with at least sixty days' notice in order to terminate the lease. The lease was automatically renewed for another two years since Homer failed to realize that he needed to provide a minimum of sixty days' notice before he intended to quit. And Homer could do nothing except scold himself for wasting time not reading the lease; there was no other option.
When Homer brought up the fact that he hadn't read the lease, he was unaware of the 60-day notice. How did the landlord respond? Although the landlord understood Homer's situation, he insisted on honoring the agreement. This meant that Homer would still be responsible for paying rent for another two years regardless of whether he moved out as planned.
Is the landlord evil because he refused to release Homer out of the lease agreement's enforcement? Absolutely not. Looking at it from the landlord's perspective, he was left with no alternative but to enforce the lease restrictions. A two-year lease had been secured, so he knew his space would be rented. The unexpected vacancy of the room was not in his plans. Landlording empty space is like running a company without clients. There will be no money to pay the mortgage if the space is empty because rental fees will not be collected.
Well, "It's just business..." as the old adage goes.
Any decent landlord would feel terrible that Homer didn't realize the auto-renewal clause was in the lease, but they wouldn't let their own financial stability be jeopardized because of it. So, it doesn't matter if Homer read the lease or not. Homer must fulfill his obligation as a tenant since he agreed to the terms of the lease when he signed it.
Even though Homer can't get out of his old lease, he's moving his business to a new location and will keep paying rent on the old space for the next two years or until he finds someone to sublet it. No matter what happens, Homer will continue be legally liable as the tenant—that is, until his sublessor agrees to a new lease with the landlord. Ideally, he'll find a new tenant and have them pay the rent.
Read the lease; that is the story's message, again. Or, better still, have a lawyer to look it over for you. Over the years, I've learned that it's crucial to have an attorney analyze any legal document before signing it, but it's especially important when it concerns money or my firstborn kid.
Additional considerations before entering into a business lease are as follows.
How does one determine the amount due for a lease? The simplest way to figure out how much you'll have to pay each month for a lease is to multiply the square footage by the price per square foot and then spread it out over a year.
If the rent is $12 per square foot and the space is 1,000 square feet, the total yearly payment would be $12,000. One thousand dollars would be the monthly payment when divided by twelve months. This is a simplistic case, to reiterate. Rent increases, operational expense escalations, common area charges, and other such features are now standard in commercial leases and significantly impact the final price.
Where does the money go? Make sure you know precisely what you're getting for your money. Is the rent the only expense for which you are liable? Consider utilities as an example; will you have to pay for them yourself? Do things like janitorial services and parking cost money? Who is responsible for running the repair and maintenance department?
Has an escalation clause been included? An escalation clause, which permits the landlord to charge renters more for higher building operating expenses, is a common provision in leases. You should request a limit on the maximum amount that the lease payment can increase by within a specific time frame if your lease has such a provision. Furthermore, you have every right to request an itemized breakdown of the costs that are being used to justify the escalation clause in the event that your landlord ever uses it to increase your rent.
Are there any potential rent hikes? An essential question to ask is: how much more money may the landlord charge if you decide to renew the lease? Rents are likely to rise in tandem with property values. Your landlord has every right to request a rent increase if he is able to rent the space for more than what you agreed upon a year ago. Having your rent double in one night, though, would be a nightmare. Before signing the lease, try to negotiate the increase. Rent increases are typically expressed as percentages rather than fixed prices.
Validation and cancellation. You are usually required to provide at least sixty days' notice under most leases in order to end the lease and leave the property. Many leases also automatically renew for another term unless notice is given within 60 days before expiration, as Homer discovered. Be aware of the notice period and when your lease expires.
Must I provide a personal guarantee? What if your company experiences financial difficulties and is unable to pay the lease payment? Is it then your personal responsibility to pay the rent? Likely yes. Landlords typically require a personal guarantee from company owners or officers. If your company goes bankrupt, you will still be personally responsible for paying off the remaining balance of the lease.
Please, lastly, make everything crystal clear. Make sure you understand every aspect of the lease. And if you're still confused, just ask.
Can you tell me which space you are renting? Who pays for the cost of repairs? Which shared spaces are available to you? The common restrooms need soap, towels, and, most significantly, toilet paper, but no one seems to care about the tiny details.
Just something to think about now, before you unexpectedly find yourself in a situation where you need these conveniences.
May you achieve all your goals! ZZZZZZ

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