Negotiating lease terms with a commercial landlord is an important step for any business. You must take certain legal precautions to ensure that the lease agreement protects your interests and avoids potential legal disputes down the road.
Understanding the legal landscape is necessary when entering into a commercial lease.
Understand the lease structure
Before signing a lease, carefully review the lease structure. Determine whether the lease is a gross lease, net lease, or percentage lease, as each affects how much you will pay. For instance, in a net lease, tenants may be responsible for property taxes, insurance, and maintenance costs. Clarify these responsibilities to avoid unexpected expenses.
Negotiate favorable terms
Leverage negotiation to secure favorable terms. Key areas include the length of the lease, rent escalation clauses, and renewal options. California law allows for flexibility in these negotiations, so ensure that the lease terms align with your business goals. Consider requesting a “good guy clause,” which allows you to terminate the lease early if the business is not successful, minimizing financial liability.
Address maintenance and repairs
Clearly outline who is responsible for maintenance and repairs. In California, landlords often include clauses that make tenants responsible for all repairs, including structural ones. To protect your business, negotiate terms that limit your responsibility to non-structural repairs, or cap the costs that you may incur.
Understand exit strategies
Understand and negotiate exit strategies in the lease. These could include subletting, assignment, or early termination options. In California, landlords are not required to mitigate damages if a tenant breaks a lease, meaning you could be liable for the entire lease term. Having clear exit strategies can protect your business from long-term financial burdens.
Review legal compliance requirements
Finally, ensure the lease complies with California laws, including those related to accessibility under the Americans with Disabilities Act (ADA). Failing to meet these requirements can lead to costly legal issues. Consider having a legal professional review the lease before signing to ensure full compliance and safeguard your interests.
Taking the time to carefully negotiate and understand your commercial lease can save your business from significant financial and legal challenges. By being aware of what to include, you can secure a lease that supports your business’s long-term success.
