If you operate a business that has a bricks-and-mortar presence, your monthly lease payment is likely among the most significant of your operating expenses. A commercial lease is the document you sign with the owner of the property that allows you to possess that property for a certain period of time in return for the payment of rent. In addition to creating the basic relationship between landlord and tenant, many leases also contain certain provisions as to how you may use the property that you are leasing. In some cases, a lease agreement may contain certain provisions that are not always clear and may come as an unpleasant surprise to business owners when their monthly lease payment increases or the landlord attempts to enforce a provision that prohibits you from engaging in a certain kinds of activity. The best way to avoid this scenario is to have your commercial lease reviewed by an experienced small business attorney prior to signing any documents or even entering into any verbal agreements. In the meantime, here is a list of the most common of these “gotchas” and how they may affect you in the future.
Passing variable costs through to the tenant – In some cases, a landlord may insert a clause that passes certain costs through to the tenant. Common examples include property taxes, insurance premiums, building repairs, or certain utility payments. As a result, a business owner who has budgeted for a fixed lease payment each month may suddenly be liable for significantly increased payments should these costs rise.
Making the tenant liable for any increased taxes that occur as a result of selling the building – If the landlord sells the building, the property taxes imposed on it may increase. Tenants may be on the hook for these kinds of costs if the lease contains a provision to that effect.
Early termination options – If the terms of the lease allow a landlord to remove a tenant prior to the end of the lease, a business owner may find themselves without a place to operate should the tenant receive a better offer on the property or if other circumstances make it attractive for the landlord to terminate the lease early. If you sign a lease that contains an early termination option, you may not have any legal recourse should the landlord choose to exercise this option.
Limitations on subleases – In some cases, a business may find itself with extra space that it does not need. This could occur for a variety of reasons, including personnel changes or diminution in business volume. When this occurs, many businesses sublease some of their space to another tenant in order to utilize the space that they are not using. A provision in a commercial lease that prohibits such subleases can operate to keep tenants from entering into such arrangements.
Provisions that create personal liability for business owners – Many business owners use business entities such as limited liability companies (LLCs) or corporations to avoid personal liability for business debts. Sometimes, a landlord may insert a clause into a lease, making the business owner personally liable for any debts that may arise under the terms of the lease. For example, a landlord that had utilized a lease agreement with such a provision could sue the business owner personally should the business fail and be unable to pay its monthly lease payment.
Contact a small business attorney today to discuss the terms of your commercial lease
It is important for small business owners to have stable monthly expenses in order to be able to effectively plan their business strategy. Additionally, you do not want to suddenly find yourself without a physical base of operations if the lease has a provision of which you were not aware. If you require a physical location to conduct your business, your lease can be one of the most important documents you sign and you want to make sure all lease terms are in your best interest. Having your lease reviewed by an experienced lawyer is the best way to ensure that you understand all the terms of your lease and that its terms are as favorable to you as possible. Call our office to schedule a free consultation with small business attorney Claire Kalia today.