Understanding the Process of Signing a Commercial Lease: Key Steps and Considerations
When entering into a commercial lease, it's crucial to have the right team in order to protect your interests and avoid costly mistakes. This guide will walk you through the essential steps and provide a few insights into key terms that require careful negotiation.
Step 1: Letter of Intent (LOI)
The process often begins with a Letter of Intent (LOI). This document outlines the basic terms and conditions agreed upon by the landlord and tenant. It’s not legally binding but serves as a roadmap for the formal lease agreement. Key elements in the LOI include:
Rent amount and escalation terms;
Lease duration and renewal options;
Description of the leased premises;
Tenant improvement allowances; and
Basic responsibilities of the landlord and tenant
Having a commercial broker and attorney assist you in negotiating the LOI is invaluable. Brokers understand the market, have insights into comparable lease terms, and can help secure more favorable conditions. Without having an experienced professional, you can leave loose out to many potential concessions landlords are willing to make. For example, many new businesses do not realize that landlord’s are willing to provide rent-free months at the beginning of the lease and are willing to subsidize your build out of the space in amounts often exceeding $100,000.00.
Step 2: Negotiating the Lease Agreement
Once the LOI is finalized, the next step is drafting and negotiating the lease agreement. This is where the services of an experienced attorney become critical. A lease agreement is legally binding and contains detailed terms that can significantly impact your business.
Key Terms to Negotiate:
Rent and Escalation Clauses: Ensure clarity on what’s included under base rent, annual increases, and additional costs provisions (e.g., property taxes, insurance, and maintenance under triple-net leases). Your attorney will assist in limiting the scope of such provisions and clarifying any ambiguities.
Tenant Improvements: Specify who pays for what kind of modifications to the space and and who pays for them.
Termination and Renewal Clauses: Protect your rights to renew or terminate the lease under specific conditions. For example, you can negotiate your right to terminate the lease if a natural disaster or pandemic occurs.
Assignment and Subletting: Ensure flexibility in case your business needs to move or downsize. Often times, leases that landlords propose will severely restrict subleasing.
Exclusive Use and Competition Clauses: Avoid situations where competitors can lease nearby spaces in the same property.
Repair and Maintenance: Clearly outline the landlord's and tenant’s responsibilities. By doing so, you can potentially avoid being responsible for things like leaky roofs, plumbing issues, and structural issues.
Default and Remedies: Protect yourself from harsh penalties or loss of business in case of disputes. All businesses experience rocky days, your legal counsel can limit the damages and your personal responsibility in case you are unable to abide by the terms of the lease.
Risks of Proceeding Without Legal Counsel
Without an attorney, you risk overlooking critical details such as:
Ambiguous Terms: Vague language that may lead to future disputes.
Hidden Costs: Unanticipated fees or unfavorable escalation clauses.
Default Triggers: Unfair provisions that could terminate your lease unfairly.
Zoning and Compliance Issues: Ensuring the space complies with all legal requirements for your business.
Protect Your Business with Triangle Legal
Signing a commercial lease is one of the most significant commitments for any business. Don’t leave your future to chance—let Triangle Legal guide you through the process. Our experienced attorneys:
Review and negotiate LOIs and lease agreements,
Protect your rights and minimize risks, and
Provide strategic advice tailored to your business needs
Contact Triangle Legal today to ensure your commercial lease aligns with your business goals and complies with the law. Schedule a consultation to safeguard your investment and secure your peace of mind.
Disclaimer
This article is for educational purposes only and does not constitute legal advice. Laws and regulations may change, and the specifics of each lease can vary. If you require legal advice tailored to your situation, consult a qualified attorney. For assistance with your commercial lease, contact Triangle Legal.