The Details from a Lease
In the last article we looked at some of the things that you should take the view that leasing first office or shop window for your company. As a reminder, you should not only consider the old standard “location, location, location” but also things like sufficient parking, the number of employees who will work on site, and future growth projections. I stressed that it was important not to get caught in the moment. You should take your time, the space best suited for your company for the long haul, not just for today to be found.
This week we will discuss the most important aspect of the process: signing a commercial lease (insert dramatic music here). One of the biggest mistakes many entrepreneurs make when leasing commercial space is not reading the lease. Forget to read the fine print. When it comes to a lease its ALL fine print.
Do not believe me? Let me tell you the true story of my friend, Homer, whose name I changed to protect the ignorant. Homer signed a lease for two years, a number of offices for his business. As the owner of the company’s Homer signed on the dotted line and agreed to personally guarantee the payment of rent and comply with them. Homer moved and it was business as usual “until the end of the two-year lease term approached. It was then that Homer discovered that it would not read the lease to be a very costly mistake.
Toward the end of the two-year lease period Homer decided to relocate, but when he saw the landlord what he thought was the usual 30-day notice, he discovered that the lease automatically for an additional two years term at the 60-day Notice number renewed. In other words, has not Homer, that the lease for at least 60 days notice required to be aware that the landlord on the lease would not be renewed. Since Homer does not know that he was obliged to give at least 60 days prior to his intention to vacate, the lease is automatically renewed for another two years. And it was not a darn thing Homer could do against it, but that it around and slapping each other on the back of the head for not taking the time to read the lease.
What was the landlord’s position as Homer noted that he had not read the lease and was not known to be terminated 60 days? The landlord, while understanding of Homer’s Not stuck to his guns, and Homer said he had the lease, which meant honor, even if Homer moved as planned, he was still on the hook for paying the rent for another two years.
Does the fact that the landlord decided to enforce the lease, instead of Homer is off the hook, him a bad man? Not at all. Viewed from the perspective of the landlord, he had no choice but to enforce the terms of the lease. He had a signed contract that told him his space would be rented for the next two years. He will not be scheduled on the space suddenly free. As a landlord with rented space is not like a business without paying customers. Empty space means no revenue from rental fees, which means paying any money to the mortgage payment. As an old saying: “It’s just business …”
Clearly, any owner with a heart feel bad that Homer did not know the auto-renewal clause, but not so bad that they are willing to risk their own financial well-being of Homer, sitting room freely. The bottom line is this: Homer, whether to read the lease or not is irrelevant. Homer signed the lease, the agreement to the conditions, and therefore he must keep his part of the deal, period.
From this point is that Homer, despite the relocation of his company not be able to get out of his old lease, and he will continue to pay the payments on the vacated space for the remaining two years term of the lease or sublease the space until it can . Even then, Homer is not completely off the hook because he still legal when the tenant if his sublessor agrees on a new lease with the landlord to sign it. Hopefully it will only be someone else make the lease payments.
The moral of this story is READ the lease. Or better yet read, a lawyer for you. I’ve learned over the years, never sign a document of any kind without my attorney review it, especially if the document was born to money and my first child.
Here are a few other points to consider before signing a commercial lease are.
As the leasing rate is calculated? The basic equation for calculating a lease payment takes the number of square feet multiplied by the cost per square meter, then amortized over a span of 12 months. For example, if you have 1,000 square meters and the cost per square meter, $ 12, the annual lease payment would be at $ 12,000. Would be divided by 12 months the monthly lease payment is $ 1,000. Again, this is a simplified scenario. Nowadays, most commercial contracts include additional factors that the final price affecting as rent increases to operating expense escalations, common area charges, etc.
Who pays for what? It is important that you pay to understand exactly what you need. Are you responsible for all costs other than the rent? Are you paying for your own utilities, such as responsibility? Do you have to pay for parking privileges or concierge service? Who does the maintenance and repair?
Is there an escalation clause? It is typical that the lease contain what is known as an escalation clause that the landlord can pass on increased building operating costs to the tenants. If your lease contains such a clause, you should ask for a cap on the amount of the lease payment can rise over time to ask. And if the escalation clause is always by your host, you are asking good use of your rights, for a detailed accounting of costs to be considered as a cause for the increase in pension.
As rent increases, it could be? A very important factor to know is this: If you renew the lease, how much can the landlord to the top of the rent? It is expected that rents will increase as property values increase. If your landlord is the space rent for more than you agreed to pay a year ago, he is using his rights to ask. However, it would be a nightmare if the rent suddenly doubled overnight. Negotiations on the increase, before you sign the lease. Most rents are calculated in percentage terms, not by flat rates.
Renewals and cancellations. Most leases require you to terminate a minimum of 60 days, if you want to terminate the lease and vacate the property. As Homer learned, many leases automatically renew for a further term, if you notice any type within 60 days of the end. You know, when your lease expires and terminate the period of time.
Is a personal guarantee required? What happens if your business to the south and can no longer afford to make the lease payment obligations? You are then responsible for paying the rent from their own pockets? Probably so. Most landlords insist on a personal guarantee of the owner or an officer of the company. This means that even if you go by companies you are personally on the hook for the remainder of the lease.
Finally, to clarify any points. They should clearly on each point in the lease. And if you’re not, ask for clarification. Exactly what space are you leasing? Who is responsible for repairs? What common areas, you have access to? Who is responsible for the conservation of small things, like keeping up with the common toilet soap, towels, supplies, and most importantly, toilet paper.
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- how to write commercial lease personal guarantee for landlords
- is a personal guarantee required for a commercial lease
- personal guarantee lease clause
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- January 11th