On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in blog on Tuesday, January 9, 2018.
When signing a lease for a commercial property, it’s important to be as prepared as possible. You’re making a significant financial commitment, and in order to achieve a deal that best suits your business interests, you need to know what you’re getting into.
As crucial as due diligence is to signing a commercial lease, however, it can also be helpful to know what not to do. Here are five commonly made mistakes in commercial leasing:
1. Getting locked into a long-term deal
Depending on your line of business, a long-term lease may not be a practical solution. For example, a high growth company would be ill-served to be locked into a multi-year lease for a space it’s outgrown. Conversely, many businesses will end up underusing their space for portions of their lease term, so in many cases, longer leases simply don’t make sense.
2. Failure to consider the tenant improvement allowance
Before you put ink to paper, be sure that you’re satisfied with the landlord’s tenant improvement allowance. This is the amount they’re willing to spend in order to prepare the space for your business. You’ll want to consult with contractors and IT specialists to make sure that this budget aligns with your vision.
3. Absorbing build-out costs
It’s possible that the space you’re leasing is in a bare, minimalist state. Landlords will often strip down commercial properties once a tenant vacates, and while it gives you something of a blank canvas to work with, the build-out costs can be exorbitant if you’re shouldering a portion of them.
5. Signing the demolition clause
If your landlord decides to tear down and redevelop the commercial property you’re leasing, your agreement could go up in smoke, provided you signed a demolition clause. By agreeing to certain demolition and relocation terms, the landlord can terminate your lease, which could be an expensive headache for your business.
4. Poor negotiation tactics and not using the leverage available to you
A commercial lease can be a lengthy, nuanced contract, and in order to reach a satisfactory agreement, proper negotiation is a must. Aside from things like not taking the bait of a better rate for a longer lease, there are concessions you can get from your landlord, and if you’re a novice at these deals, using a broker or experienced attorney can be of great help.