Reading through a commercial lease agreement is a tedious task, but simply skimming the text could have consequences for your company in the future. That's why it's important that you look beyond the financial aspects of the lease and consider the legal ramifications of the language it does and does not contain. Here are six things that should raise red flags as you review the document:
1. Promises Not Written Into the Lease
If you ever have a legal dispute with your landlord, the lease is the document that will likely be used to resolve it. If the landlord has offered a concession or agreed to something orally during the negotiation and it is not reflected in the language of the lease, you will likely not be able to prove your case in a future legal proceeding. Even if the oral agreement between you seems minor, request that the lease be updated to reflect it.
2. Lack of Warranty of Compliance With Laws and Regulations
In many leases, the tenant agrees to keep their office space in compliance with laws and regulations. Because this type of clause makes you responsible for covering the cost of improvements to bring the office in line with codes and laws like the Americans With Disability Act, you should never sign a lease that does not guarantee that the office is currently fully compliant. If not present, have a warranty of compliance added to the lease. This will help to ensure that you will only need to make changes to your space if laws and codes are updated before your lease is up.
3. Narrow or Unclear Permitted Use
Use clauses define what you can and cannot do within your office space. If the use clause is narrowly defined, you may be unable to expand into new lines of business in the future.
Similarly, unclear language could make it difficult for you to properly comply with the use clause. Should you one day have a dispute with your landlord, they could seize on this lack of compliance to force you out of your office or to assess extra rent or fees.
4. Requirements for Personal Liability
If you are personally liable for your company's rent payments, your landlord can take legal action against you individually in the event of a default. Personal liability clauses are always risky but during these uncertain economic times, it is even more imperative that you avoid agreeing to personally guarantee your office lease.
5. Total Cost Now and in the Future
When you're considering the financial feasibility of an office, you need to look beyond the base rent, considering additional expenses that contribute to the total cost like common area maintenance, other maintenance fees and additional expenses like tenant promotional organization and property management fees. Make sure that the lease agreement gets specific about what your company will need to pay for beyond base rent. In addition, take into consideration how, when and by how much your landlord can increase your rent.
Here are a few other articles we think you'll enjoy:
The Importance of An Office Layout
Ways to Know It Might Be Time for New Office Space
8 Things to Be Aware of in Your Commercial Leases
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