Best Lease Practices

Commercial Leases can be tricky.

If you own a customer-facing brick and mortar business, so much of your value can be tied to the commercial lease. You need to be thinking about the sale of your business when negotiating the lease. While there may be ways to negotiate later, they may be difficult and you are bound by your lease terms once it has been executed. A well-crafted lease will help ensure you do not lose your hard earned value when it is time to sell.

Here are some key areas to discuss with your lawyer:

Transfers: Do not give your landlord the ability to block a sale. Have a permitted transfer clearly documented so a sale can be completed without your landlord's approval. Make your lease freely assignable to an equally credit worthy owner.

Renewal Options: When you are setting up a sale, the buyers will need options to control the space for the length of their loan term. A business with only a couple years left on the lease may be unsaleable. You will likely end up negotiating terms with your landlord. This takes time and the landlord will certainly require something in exchange. It is always easier to negotiate before signing or renewal when the landlord is receptive.

Guarantees: No lease space is worth your full guarantee. If you must sign a guarantee, have some provisions set in place such as having the guarantee terminated once you reach a financial benchmark, an expiration date, or a liability cap.

Common Area Maintenance (CAM): Mistakes with your CAM can cost you. Have your CAM provisions clearly defined in your lease such as exterior maintenance, parking and landscaping. Never let your landlord leave maintenance undefined or ambiguous with wording like, “and other maintenance that may arise.” These terms give the landlord too much discretion and can impact your business value.

Exclusive Use: Restrict your landlord from bringing in other tenants with the same or similar concept as you. If you own a coffee shop, have a provision drawn up that no other tenant may serve coffee on the premises. This gives you exclusive use to sell coffee without direct competitors breathing down your neck.

It’s imperative to understand the provisions of commercial leases. Commercial leases directly affect the value of your business. Having the above provisions clearly defined before you sign will help protect you and the value of your hard work.

Have you thought of selling your business and living a life of less stress? Do you worry about the uncertain times of our strained economy and how your business will survive? Reap reward for your hard work, now could be the time to make your exit.

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