Leasing a commercial property is generally a smart decision for an entrepreneur or executive running a startup operation. Although buying a property would lead to equity after making payments, owning a property too early in a business’s development can be a mistake, partially because it may not fully meet the needs of the company, particularly once the organization begins developing.
A lease gives an organization a bit more flexibility and can help limit the liability that the company has as its growing and becoming financially stable. When considering a commercial lease, there are certain factors that an executive or entrepreneur will need to review carefully if they hope to protect themselves and the investment they intend to make by acquiring a rental property.
The duration of the lease
A commercial lease will typically last much longer than the average residential lease. Terms that last between two and 10 years are relatively common. An entrepreneur will have to commit themselves to multiple years of lease payments, which could turn into a source of hardship should the company fail. Attempting to negotiate a lower lease duration or include a force majeure clause in case the business must close due to unforeseeable and uncontrollable factors could help someone limit their risks related to future lease obligations.
Allocation of maintenance responsibilities
In a commercial lease, there are multiple different ways for the landlord to address property maintenance. In some cases, they may charge a monthly fee to each tenant that requires that they pay a portion of the total maintenance cost for the facilities. Other times, landlords pass the majority of those responsibilities to their tenants and will not do any work on the facility should issues arise while someone has a lease. Negotiating a reasonable cost for maintenance services for an appropriate division of responsibility can make a big difference in the long-term viability of the lease.
Restrictions on business operations
Commercial landlords often include easy-to-overlook provisions in their leases that can complicate business development efforts. For example, a lease may specifically forbid someone from changing the focus of the business or operating outside of certain hours. There might even be restrictions on the number of employees or the number of parking spaces that the company can utilize. In some cases, those restrictions can have an impact on maintenance obligations as well, as someone who will use the parking lot far less than others could reasonably argue that they should have less financial responsibility for its upkeep.
Reviewing and properly negotiating the terms of a commercial lease can help an entrepreneur set themselves up with more favorable arrangements when they seek to acquire commercial property.