As a business owner or entrepreneur, you will likely need to enter into a commercial lease agreement at one point. You may be the landlord operating commercial rental property or you may be looking for space to rent for your business. Either way, it is important that you understand the terms to include in the commercial lease agreement. Here, we will review some of the essential terms to include and be mindful of when entering into a business lease agreement.
What to Include in a Business Lease Agreement
A business lease agreement will state the terms of the lease. Each term can have powerful implications for this business arrangement. Before you enter into a lease agreement, check that all essential terms are present and that you have a solid understanding of the implications for each term in the agreement.
First, each party should be listed in the agreement under their business name. The parties should, in turn, sign the agreement on behalf of their businesses. Listing yourself personally on a business lease agreement and signing in your capacity as an individual party to the agreement can needlessly cause personal liability exposure. You get more protection having your business as a party to the lease agreement. While some leases may still contain a personal guarantee for the agreement, you can always request, as the tenant, that a limit be placed on the personal guarantee to protect yourself from unlimited personal exposure. For instance, you may request a dollar limit on the personal guarantee.
The agreement should also clearly state the term of the lease. While one year may be standard for most residential leases, commercial leases can be much longer. Consider what length of time you are comfortable with and be sure that this is memorialized in the agreement itself. It is also important, however, that the terms regarding the potential for renewing the lease are clearly set forth in the agreement as well. Who has the power to renew the lease? Does the tenant unilaterally have the right to grant the renewal? Is the consent of both the landlord and the tenant required for the lease to be renewed? You will also want to include terms specifically addressing what will happen to payable rent in the event that the lease agreement is renewed. Be clear as to whether rent will remain the same or whether it will increase with each renewal.
Speaking of rent, the price of the rent should be clearly set forth in the lease agreement. On top of the rent, terms of the agreement should also include what other expenses incident to the property are the responsibility of the tenant and which are the responsibility of the landlord to cover. For instance, will there be additional fees for maintaining common areas on the property? Who will be responsible for utility and tax payments? Who will cover the costs of any necessary repairs? It is important to be clear on these things as such expenses can quickly and surprisingly add up.
If you are the tenant in the business lease agreement, you should also consider including a business protection clause. Such a clause can accomplish many things, such as restricting the landlord’s ability to lease out other parts of the property to businesses that are in direct competition with your own. You can imagine that signing a lease agreement for your coffee shop only to find out that another coffee shop is going to move in two doors down would be frustrating and likely have a strong impact on your business outlook.
Texas Business Law Attorney
Do not trap yourself or your business into an unfit lease agreement! These agreements are deceivingly more complex than most people expect. Talk to the trusted business law team at the Kumar Law Firm to make sure you are protecting your best interests prior to entering a business lease agreement.