Commercial Real Estate: 5 Red Flags to Look for Before You Sign a Lease

Signing a commercial real estate lease marks an exciting time for your business, as it shows growth and greater opportunities for the future. Before you sign on that dotted line, however, it’s important to read your commercial lease in its entirety. Ensure you understand your rights and responsibilities, as well as the landlord’s rights and responsibilities.

5 Red Flags to Watch Out for in a Commercial Property Lease

If you sign an undesirable lease, it’s nearly impossible to exit without suffering some form of loss. As you read through your draft lease, watch out for these red flags.

1. Automatic Rent Increase

An automatic rent increase clause allows the landlord to increase the rate of rent automatically after a chosen period of time, often in yearly increments. For start-up businesses or small to medium-sized businesses, an automatic rent increase can cause unexpected financial struggle. Your lease should clearly explain any automatic rent increases or renewal terms, if applicable.

2. Broad Renewal Clause

Your lease should include a renewal clause that explains your options should you need to renew your lease. Make sure the renewal clause defines terms with great specificities, such as covering how much notice you need to provide to renew, how may renewal terms you have available to you and much more.

3. Unexpected Fees

Avoid a lease that mentions “occasional” or “unexpected” fees. With this wording, some landlords may attempt to charge your business fees that are not listed in your contract. If you have any concerns with the wording regarding fees, require the landlord to state each one outright in the lease itself. You don’t want unforeseen financial issues cropping up mid-lease.

4. Unfair Relocation Clause

Your landlord may try to work in a clause that says it may choose to move your business to another storefront or floor at any time. While relocation clauses are common in commercial property leases, you can ask for certain terms to be included. For example, you can ask to include contingencies that require the landlord to help pay for relocation and allow you to pay the original rent amount. If you cannot remove the clause or add in such contingencies, you may want to think twice about signing on the dotted line.

5. References to Spoken Promises

Any promise made by your landlord should be outlined in writing within your lease. Even if you know your landlord personally, a written agreement solidifies your relationship, protecting both your business and the landlord’s property. Make sure to include all verbal agreements within the written lease before both parties sign.

Does Your Commercial Lease Show any of These Red Flags?

If you have concerns about any of the clauses included in your draft commercial property lease, reach out to a professional commercial property attorney for help.

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