With A Lease The Devil Is In The Details
Below is a MRR and PLR article in category Finance -> subcategory Leasing.
With a Lease, Attention to Detail is Key
Overview
In our previous article, we discussed important factors to consider before leasing your first office or storefront, such as location, parking, employee accommodation, and growth projections. It's crucial not to rush; select a space that suits your business for the long term.
This week, we delve into the most critical aspect: signing a commercial lease. The biggest error many entrepreneurs make is failing to thoroughly read the lease. Remember, every part of it is important.
A Cautionary Tale
Consider the story of my friend, Homer. To protect his privacy, I've changed his name. Homer signed a two-year lease for office space, personally guaranteeing the terms. Business proceeded normally until the lease term's end approached. That's when Homer realized he had made an expensive mistake by not reading the lease thoroughly.
Homer planned to move out at the lease's end, believing a 30-day notice was sufficient. However, he learned too late that a minimum 60-day notice was required to avoid automatic renewal for another two years. Unfortunately, there was nothing Homer could do.
The landlord empathized but had to enforce the lease terms to protect his financial interests. With no revenue from an empty space, he couldn't afford a vacancy.
Lessons Learned
Ultimately, whether Homer read the lease or not was immaterial. He signed it, agreeing to its terms, and therefore had to uphold his end of the deal. Despite relocating, Homer continued to pay for the vacated space for two years until he could sublease it. Even that potential relief left Homer legally responsible unless a new lease was agreed upon.
The takeaway is simple: READ THE LEASE. Ideally, have an attorney review it too. Never sign a legal document without professional guidance, especially when it involves significant financial commitments.
Key Considerations Before Signing
1. Lease Payment Calculations: Understand how your lease payment is determined. Typically, it's the square footage multiplied by the cost per square foot, spread over 12 months. Be mindful of additional costs like rent increases and common area charges.
2. Expenses: Clarify what you're responsible for beyond rent. This might include utilities, parking, or janitorial services. Understand which party handles maintenance and repairs.
3. Escalation Clause: Many leases include this clause, allowing landlords to pass on increased building costs to tenants. Negotiate a cap on potential increases and request detailed expense accounts if costs rise.
4. Rent Increases: Confirm how future rent increases will be handled. Avoid unexpected hikes by agreeing on a percentage-based increase rather than flat rates.
5. Renewals and Terminations: Know your lease's expiration date and notice requirements. As with Homer, failing to provide timely notice could result in automatic renewal.
6. Personal Guarantee: Know your obligations if your business struggles. You may still be personally liable for the rent, emphasizing the importance of understanding your commitment.
7. Clarify All Terms: Ensure you fully comprehend every lease term. This includes specific leased spaces, repair responsibilities, and access to common areas.
Address smaller details, like restroom supplies, to avoid future inconveniences.
By being diligent and informed, you'll ensure your leasing decision supports your business's success.
You can find the original non-AI version of this article here: With A Lease The Devil Is In The Details.
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