dollars and sense

In the excitement of forming a new business, whether an individual is purchasing a franchise or forming a new business from scratch, a critical business start-up step often receives little attention from the business owner: business leasing.

With everything else new business owners have to decide, they tend to spend very little time understanding the commercial lease.

Before business owners sign a commercial lease, they should read it and know what it means. This seems like common sense, but many people start reading the lease (usually a considerable number of pages with a bit of “legalese”) and then stop, assuming the lease conforms to what it told them. the leasing agent.

If you can’t understand the lease, spend the money to hire an experienced attorney who can tell you what the terms of the lease mean.

While there is an up-front cost to use a lawyer for this, it is essential that you know your rights and duties under the lease and that the lease incorporate any verbal promises made by the leasing agent.

If it’s not in writing, you won’t be able to keep the promises the leasing agent made to you.

There are a number of supplies that you need to consider.

o Know your total cost. In many commercial leases, the tenant pays a base rent per month, plus a portion of the taxes, insurance, and maintenance of the building and its common areas.

In a shopping center lease or restaurant lease, there may be additional payments required that are a percentage of the lessee’s gross sales.

o Get to know the building. You should know how old the building is and when major repairs to the heating and cooling systems, roof, and common areas were last completed. If not, you may be surprised with a bill for your part of the work on these items.

o Know who is responsible. The tenant named in the lease must be your business entity, which is the party responsible for making lease payments.

As a newly formed business with no prior record, the landlord may ask you to personally guarantee the lease. This means that if the deal fails, the landlord will expect you to pay the lease for the remainder of your term, which could be a substantial amount of money. Your attorney may be able to help you negotiate better terms than a personal guarantee, especially if you have owned a business in the past.

o Get to know your neighbors. If the property you want to lease is in a strip mall or mall, you may be concerned if the landlord rents the space to a competitor.

If your business requires peace and quiet, you may need to strengthen the provision that allows you to “quietly enjoy” your leased space, to allow you to terminate the lease if the landlord rents to a noisy neighbor.

o Know your financing. If you are a franchisee, you should not sign a lease if you have not finalized your financing, purchased your franchise, or completed the purchase of your new business. It’s no fun making lease payments for a business you don’t own.

If the landlord insists that you sign the lease, your attorney should insist on language that includes a contingency for financing and a contingency for terminating the business or purchasing the franchise.

Published in the Naperville Sun – September 16, 2007