As a business owner trying to rent a property for commercial purposes, there are some things you must look out for before you sign that agreement with your landlord (usually the owner of the property). Commercial leases agreements are considered long-term contracts that, on average, can last for at least five to six years. The sad reality is that irrespective of the size of your business, your lease agreement’s rights and limitations will greatly affect your ability to expand, contract, and even relocate your business when the time comes.
Therefore, as the corporate tenant that you are, before signing a commercial lease, you need to be knowledgeable about what you are trying to sign. In short, you must not leave room for any errors as they can come back to bite you!
In this article, we have compiled a list of some dangers to look out for before signing a commercial lease.
So, buckle up, and let’s dive straight into it!
The Difference Between Commercial Leases And Residential Leases.
There are a lot of people with little or no knowledge about lease agreements that often mistake a commercial lease for a residential lease; this in itself is a very terrible misconception that we urgently need to treat.
The difference between a commercial and a residential lease is not that much. One key difference between the two types of lease agreements is their purpose (what they cover/are used for). As the name implies, a commercial lease agreement involves using the property to run your business. In contrast, a residential lease, on the other hand, involves using the property in question as a home (an example is a house you sleep in).
Other differences include the Longevity and rigidness of a commercial lease compared to a residential lease. Also, a residential lease offers more protection to the tenant than a commercial lease. And lastly, in a residential lease, the negotiation process is fairly easy and pretty much straightforward, while it is not so in a commercial lease.
Commercial Leases: Dangers You Need To Look Out For
Now that you know the importance of both residential and commercial leases and what differentiates them, we will talk about some of the major mistakes people often make when planning for new space and negotiating the lease.
Maintenance And Repair Responsibilities
While this might seem like the least of the issue, it can cause problems between you and your landlord. Typically, a commercial lease often contains what you can and cannot do regarding maintenance and repair of the property. For example, it will be stated if you can customize the property or restructure the layout of the property.
Therefore, you have to make sure your role in the property is specified in the lease agreement to ensure that you only pay for what you’re responsible for while the landlord takes care of the rest.
Restriction on Lease Assignment and Subletting
This is another thing that, surprisingly, many people often overlook in commercial leases. Before you sign a lease, you have to check if the lease agreement allows you to sublet that same commercial property to another person (a third party). Although often used interchangeably, the term assigning and Subletting is interpreted differently under the lease agreement law. The former, for example, means that someone else fills in for you – that is, you assign the lease to another person, and instead of you, the third person now has a direct contact/relationship with the landlord.
However, if you sublease that same property to another person, you still have a direct relationship with the landlord and subtenant. The subtenant, however, will not have any relationship with the landlord. That is, you are still bound by the agreement to pay rent and other dues.
Limitation Of Liability
You also need to check what the lease agreement says about who will be liable for the loss or damages to the property. A commercial lease agreement always contains a clause that will specify which party will be held responsible when the property is lost or damaged.
Typically, in this type of lease, a tenant will find several sections that limit the landlord’s liability, such as provisions regarding tenant alterations and brokerage fees, indemnification obligations, and buildouts. As a tenant, you will be required to keep track of all these limitations that may potentially shift some of the risks back to you.
And lastly, enforcing this type of clause will largely be dependent on your location as this type of clause is not valid in all regions.
Conduct-Related Terms/Restrictions
Another thing you need to look out for is what the lease agreement restricts and permits you to do. For example, you need to check if the agreement restricts you from operating at some hours or days, the kind of behavior permitted, and the effects your co-tenant business will have on yours.
Representation Issue
The simple truth is that no one has your best interest at heart when it comes to business or anything involving contracts or money. Therefore, before signing your commercial lease, you need to be present throughout the whole process to avoid stories that touch. This can also be applied to your landlord because they simply won’t draft a lease that will favor you more than it will favor them.
However, since the legal provisions of most commercial leases are highly specialized and sometimes difficult to understand by a random person, it will be advisable to hire a licensed lawyer that understands the law guiding commercial lease agreements.
Inability To Understand Crucial Lease Provision
Another problem you can run into is when you, as a tenant, do not understand some of the basic and crucial lease terminologies. For example, “Terms” basically denotes the length of the lease, rent structures (Percentage lease, Full service gross, double net lease, net lease, and Triple net leases), parking and signs, security deposit, etc. Understanding all these will go a long in helping you navigate the world of a commercial lease.
CONCLUSION
If perhaps you live in and around Saanichton, B.C, and you are still confused about how to go about the whole process, then don’t wait till you sign a lease that won’t favor you or your business before you reach out to Saanichton Law Group.
At Saanichton Law Group, we have been providing legal services to the whole of South Vancouver Island and the environs for 25 years. And in those 25 years, we have negotiated countless leases in their favor!
