Pennsylvania small business owners know the importance of a proper work space. Often, small business owners rent workspace. There are several factors to consider when signing a commercial lease agreement.
A commercial lease is a contract between a landlord and a business for rental of a piece of property. Business owners often choose a commercial lease over purchasing property because it requires less capital.
Differences between commercial leases and residential leases
Commercial leases are different from residential leases. Commercial leases are not subject to consumer protection laws against things such as deceitful landlord practices because state lawmakers assume businesspeople are more knowledgeable.
Additionally, commercial leases use different forms. Landlords normally use standard forms for residential leases because there is little variation. However, terms vary in commercial leases due to the different needs of each business.
While there is more flexibility in negotiations in a commercial lease, they normally run for longer periods of time. The usual term for residential leases is one year. In contrast, commercial leases may run for several years. Therefore, they are generally more difficult to break.
What to include in a commercial lease
When signing a commercial lease it is important to make sure the terms and conditions meet the needs of the business. Common items to include in a commercial lease include:
- Rent amount and increases
- Security deposit
- Length of the lease
- Description of the property
- Potential improvements to be made
- Subletting options
Commercial leases normally come with an annual percentage based rent increase. Commercial renters can attempt to negotiate a cap on this percentage.
It is also important to clarify that the commercial lease does not prohibit the use of advertising signs. In addition to a basic business sign, businesses commonly use sales or event signs to signal deals or other unique opportunities the business offers.
There are two clauses that should also be considered. An exclusivity clause is commonly included by retail businesses renting space in a commercial complex. The clause prevents the landlord from renting nearby space to a competitor.
The landlord may also require a use clause. This prevents the tenant from engaging in certain activity on the property. Business owners should ask for a broad use clause in case of future potential business expansion.
Finally, do not forget about complying with the Americans with Disabilities Act. If a business has more than 15 employees and is open to the public, the Act requires that the property be accessible to people with disabilities. Include in the lease which party is responsible for making any necessary changes as well as future modifications.
Business owners who are considering signing a commercial lease can benefit from an experienced business and commercial real estate attorney. The attorney can assist with drafting a commercial lease in a manner that ensures all interests are understood and properly protected.