Most small business owners often act as their own legal counsel for a variety of what they consider to be “simple” legal matters. Such “simple” matters often include reviewing and negotiating commercial property leases. While I firmly believe that a lawyer is not needed for every small business legal matter, reviewing a commercial lease is one of those matters that should almost always be done by an attorney. In response to that statement, many small business owners would say, “But why? Aren’t most leases just form documents anyway - there is nothing to negotiate”
While its true that many commercial landlords use form documents, it is not true that there is no room for negotiation. More importantly, just because a lease is a form document doesn’t mean that there are not adverse provisions in the lease that you might want to avoid. In the course of my career I have seen thousands of commercial leases. Most of the small commercial leases are based off of standard forms. However, I would estimate that almost 75% of small business commercial lease agreements are modified, to some extent, by the landlord or his/her attorney.
A commercial lease is not something that a small business owner (or anyone for that matter) should sign without having a complete understanding of the terms and conditions. Often times, small business owners feel compelled to take the first commercial space that looks “good enough” and fits their budget. They simply sign the lease without understanding the implications of the lease, their rights or obligations. A qualified attorney can help a business owner fully understand their obligations and remedies under the lease and help him/her decide whether the lease is worth signing.
So, what are some of the things that an attorney will be able to assist small business owners with relative to a commercial lease agreement? Well, before I answer that questions I must point out two important issues. First, most leases are negotiable even if the landlord says he is not willing to negotiate. Second, in my opinion there is no property worth signing a unfavorable lease for. Now let’s get into the issues that an attorney can help identify and protect small business owners from.
Slanted Leases It is a fact that most commercial leases are “slanted” in the direction of the landlord. An attorney is trained to examine the lease provisions and determine which ones are so one-sided that they need to be modified. Sometimes a lease is so one-sided and the landlord so unreasonable that no matter how “perfect” the space is you you should walk away.
Personal Guarantees Personal guarantees can sometimes be “hidden” within the body of the lease. I have spoken to many small business owners who didn’t realize that they had signed a personal guarantee until they were being sued personally by the landlord. When you sign a personal guarantee you are agreeing to accept personal responsibility for debt, liability and other situations. A personal guarantee can eliminate all protections that you might have had from your corporate structure (i.e. LLC, Inc.)
Common Area Maintenance Fees (CAM) It is really important to make sure that your CAM is not dependent upon the total rented square feet. Rather, it should be based upon the total rentable square feet. This is extremely important because astronomical CAM fees have put many small businesses out of business.
Competition There are few things worse than moving into your new space only to find out that the landlord just rented the space across from you to a competitor. An attorney will be able to make certain that the landlord will not be permitted to rent to your competition.
“Dangerous” Tenants I don’t mean that the tenants are”dangerous” in the sense that they could cause you bodily harm, rather I mean that whatever they are selling could have a negative impact on your business. For example, I was involved with a client who was a pediatrician. This doctor had negotiated her commercial lease without an attorney. She was one year into her ten year lease when the landlord rented the office next to hers to a magazine publisher and photographer who published and photographed pornography. Even though they were not photographing nude models in the hallway, the pornographic element was enough to cause many families to find a new pediatrician.
Negotiations Under most circumstances you will get more accomplished if an attorney negotiates your commercial lease than if the small business owner or his/her real estate broker attempts to do so.
Summary
It is important to remember that there is really no such thing as a “small” or “simple” commercial lease. A landlord-slanted lease has the potential to damage your business, sometimes beyond repair. While there are many legal and quasi-legal matters that small business owners can handle on their own, reviewing and signing a commercial lease is not one of them.
If you would like more information about this topic or have general legal questions, please feel free to contact me at (973)949-3770 or via email at pl@pjlesq.com Offices in: New Jersey & New York.
© 2010-2015, Law Offices of Peter J. Lamont & Associates. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between the firm and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.