When you make the decision to rent commercial space for your business, the considerations involved go far beyond location, term, and rent. Failure to take into account a number of other important issues, or ignorance of the detailed terms of your lease, can come back to haunt you with devastating consequences for the continued viability of your business.
You should always retain and consult with an experienced commercial real estate lawyer before signing any commercial lease or agreeing to any terms. Boilerplate legal documents are rarely a good solution. Your business is unique; your legal documents should be unique as well. As you are evaluating your options for your business’s new home, here are some crucial issues that you should keep in mind as you make your decision:
- Build-out. Most often, the space to be rented will require significant work to make it suitable and desirable for your business. You of course will want to spend as little as possible on the build-out so you will want to negotiate a significant tenant improvement allowance. In a “turn-key” build-out, the landlord covers all of the costs of the improvements and factors those costs into the agreed-upon rent. Alternatively, the landlord can agree to contribute a set amount to the build-out. Either way, you need to ensure that you maintain as much control over the build-out process as possible.
- Use Provisions. Use provisions within commercial leases are designed to prevent similar or competing businesses from renting and occupying nearby space in the same building. This is obviously more of a concern for retail space, but it is important that your efforts are not undermined by other leases, and that you have ensured that all of your intended uses for the space are allowable under the lease terms.
- Assignment and Subletting. At some juncture, you may wish to assign or sublet your space to a third-party. Commercial leases almost always require that the landlord give prior approval before you can do so. Make sure that the landlord cannot unreasonably withhold its consent to a sublease and be careful to note that you will still likely be fully liable for all rents even if the lease is assigned or property sublet to another party.
- Property and Facility Maintenance. It is critically important to define which party is responsible for maintaining the building and its interior. Although it may seem obvious that a landlord is in charge of repairing things like broken HVAC systems and leaking roofs, other items aren’t so clear-cut. If you bear the cost of new carpeting, shelving, and electrical wiring, is the landlord still obligated to fix these items if something fails? What if you install new signage? Who is responsible for repair costs pays for broken neon in one of the sign’s letters? These are all items that have the potential to create serious and costly conflicts if not addressed in the commercial lease agreement.
- Gross v. Net Rent. Just like airlines tag on all kinds of fees on top of the base fare, your true monthly rental costs could be hidden if you don’t pay attention to whether you are signing up to pay “gross” or “net” rent. Gross rent is the rent calculated inclusive of all building costs. Net rent is the rent calculated excluding building costs. Make sure you understand what costs you will be on the hook for every month.
- Default: Notice and Opportunity to Cure. You don’t want a technicality or an unexpected delay in making a rent payment to be an excuse for terminating your lease. You should seek to include provisions allowing for notice of default and an “opportunity to cure” before the landlord may begin exercising remedies.
These are just a handful of the issues that you need to consider as you engage in one of the most fundamental and impactful choices you can make for your business. With so much riding on the terms of a commercial lease, don’t make the mistake of thinking that form documents or your experiences as a residential tenant are sufficient to protect all that you have worked for. Meet with an experienced Chicago commercial real estate lawyer who can provide you with the guidance and peace of mind that will allow your business to thrive in its new home.
Louis R. Fine: Chicago Commercial Real Estate Lawyer
I invite you to learn more about how I might be able to help you with your business or real estate questions, issues, and concerns. Please give me a call at (312) 236-2433 or fill out my online form to arrange for your free initial consultation. I look forward to meeting with you.