Running a business requires an enormous amount of focus and effort. Disputes about office space or a lease agreement are distractions that entrepreneurs can’t afford. A number of common disputes that crop up between commercial real estate renters and building owners can be avoided by creating comprehensive lease agreements before moving your business into a space. Working with a knowledgeable commercial real estate attorney can prevent many disputes from occurring.
Here are four common causes of commercial lease disputes and how to avoid them:
1. Sudden rate increases – Because operating costs are less predictable in today’s commercial real estate environment, landlords often build in escalation clauses that provide the ability to pass along cost increases throughout the life of a lease agreement. Some contracts have scheduled rate increases while others are tied to increased heating or cooling rates, maintenance or other costs. It is vital to read the lease agreement carefully before signing to spot these escalation clauses and make sure you fully understand them.
2. Undesirable neighbors – If you are leading emotional family counseling sessions in your office, you don’t want the thumping and shrieks of a karate class coming through the walls. Zoning laws may help control what types of business can be operated out of a commercial building, but you can also negotiate limits with the landlord if that is important.
3. Who pays for improvements? – Depending upon the age of the building you move into and any uncommon requirements your business needs, renovating commercial real estate can be expensive. Who pays for what is usually open to negotiation and creative deal making. For example, if you sign a longer lease, a landlord may be more willing to pay for renovation costs that would normally fall to you. It is critical to put all agreements regarding remodels and upgrades in writing. And be specific about what equipment or upgrades you own and can take with you if you move to another location.
4. The right to sublease – If you need to move for more space or if you go out of business, you will likely still be on the hook for the length of your lease agreement. Keep in mind that any restrictions you write into a contract regarding who the landlord can lease neighboring space to will apply to who you can sublease to. And if the business you sublease does not pay rent or leaves before your lease agreement expires, you will be responsible for paying the balance due. Things also can get complicated if a tenant that subleases pays more for the space than you did. Who gets to keep that extra profit? Here again, the wording of an original contract must be specific.
Taking the proper precautions upfront will go a long way toward saving you the headaches – and the costs – of commercial lease disputes. In these situations, an ounce of preparation is surely worth a pound of cure.