Startup owners may become overwhelmed in their search for commercial office space. Most often, entrepreneurs will need to lease office space because they neither own nor have the finances for purchasing the space they require. As a result, many startups looking to the trendy and versatile shared office spaces such as WeWork. While these solutions offer significant flexibility, the terms of a commercial lease should always be carefully considered and reviewed by an attorney.
Commercial leases are legally binding agreements into which two parties willingly enter. The lease’s terms govern the landlord-tenant relationship, and the terms often indicate how the parties will both conduct business and resolve disputes. Startups should anticipate negotiating the terms of the lease with the landlord. Negotiating the terms of a lease affords a startup the opportunity to reach an agreement that best suits its needs.
Many commercial leases include a “permitted use” clause. This clause identifies those uses for which the startup may use the property. A narrowly written permitted use clause often restricts the startup’s use of the property to a low number of activities. Such an unfavorable clause can disrupt a startup’s future growth, any future sale of the startup, and any plans the startup may have for diversification. Tenants should negotiate for broad permitted use clauses.
Rent plays an integral role in the landlord-tenant relationship. A startup leasing commercial space should be aware of the total rent amount as well as when the rent is paid. This helps the owner of a startup better identify future expenses and allows for the owner to accord rent expenditures with expected cash flow.
The rent amount may change over time. Many commercial leases include clauses discussing future rent increases. Landlords must disclose how the calculate rent increases. A tenant may be able to negotiate terms that more closely align with expected revenues.
Lease Term and Renewal
A landlord and tenant will agree to a lease term that governs the duration of the commercial lease. Commercial leases are often entered into for several years. The lease term should best suit the startup’s needs and goals.
It is also advisable for startup owners to be aware of any options for renewing the lease. Owners often discover that the commercial space which they are leasing perfectly suits the company’s needs. An owner seeking to keep his or her startup in a specific commercial location should be aware of the lease’s terms and conditions regarding renewal. The inability or excessive costs for renewing the commercial lease may negatively a business’ goodwill and equity.
Several utilities are necessary to operate a commercial business space. A startup should not expect to pay the cost of all of those utilities. Startup owners should discuss the extent of their obligation to cover these operating expenses.
Contact a Silicon Valley Startup Attorney Today
Are you considering leasing office space for your startup? If so, consult with a skilled and knowledgeable attorney who can help you better understand the terms of the lease before you sign anything. Kalia Law P.C. is committed to providing your small business or startup with simple, easy to understand answers to your complex business questions. Schedule your initial consultation by calling (650) 701-7617 today or contact us online.