A commercial real estate contract allows the business to have a formal relationship with the property owner. However, before getting into the contract, it is essential to understand the provisions therein.
Like any legally-binding agreement, a commercial lease contract can be lengthy and overwhelming to read. Pay attention to these clauses before signing the document:
Unlike residential contracts that go year to year, most commercial leases are generally long-term, usually 5 to 10 years. During this period, it is not uncommon for the landlord to propose a rent hike. It is important that the contract includes the rent escalation clause that clearly outlines how the rent will be adjusted during the lease term. This can be in the form of a fixed amount for an annual increase or on the basis of inflationary indices.
This provision outlines how the tenant will use the commercial property they are renting. This clause may restrict the tenant to a specific line of business and spell out the business hours and the marketing signage they can use while on the property. You must be clear on how this clause will impact your business before moving in.
Some lease agreements may also come with an exclusive use clause. This ensures that no other business in your industry can operate within the larger premise. The idea is to protect your business from having neighbors as competitors. This provision is commonly negotiated by the tenants.
A tenant may also negotiate the right to sublet a portion of their rented space to another tenant, especially if the two businesses are complementary. This provision protects the business from paying rent for areas they are no longer using or relocating to a smaller space.
Renting a space for your business can be complicated. Start by carefully reading and understanding what you are getting into.