When it comes to running a small business, signing a commercial lease is often a necessary step to securing a physical location for the business. However, navigating the world of commercial real estate can be challenging, and small business owners may make mistakes that could have serious consequences down the road. Below, we’ll discuss the 15 most common mistakes that small business owners make relating to commercial leases, and provide guidance on how to avoid them.
1. Fully Understanding the Lease Terms
Signing a commercial lease without fully understanding the terms and conditions can be a costly mistake for small business owners. The lease agreement is a legally binding contract that outlines the obligations of both the tenant and landlord. It’s important for small business owners to review and understand all aspects of the lease agreement, including the rent amount, lease term, renewal options, and any penalties for early termination or late payment.
To avoid this mistake, small business owners should take the time to carefully review and understand the lease terms. If there are any aspects of the lease agreement that are unclear or confusing, it’s important to ask questions and seek clarification from the landlord or a legal professional.
2. Not Negotiating the Lease Terms
Small business owners may assume that the lease terms are non-negotiable, which can lead to unfavorable terms that could impact the business in the long run. Negotiating the lease terms can help small business owners secure more favorable terms, such as a lower rent rate, longer lease term, or more flexible renewal options.
To avoid this mistake, small business owners should be prepared to negotiate the lease terms. They should have a clear understanding of their business needs and goals, and be willing to work with the landlord to find a mutually beneficial solution.
3. Not Seeking Legal Advice
Small business owners may not seek legal advice when negotiating or signing a commercial lease, which can lead to legal issues down the road. A legal professional can help small business owners understand the legal implications of the lease agreement, identify any potential risks, and ensure that the lease terms are fair and reasonable.
To avoid this mistake, small business owners should work with a commercial real estate attorney who has experience in negotiating and drafting lease agreements. An attorney can review the lease agreement and provide guidance on any potential legal issues or risks.
4. Failing to Budget for All Expenses
Small business owners may not fully understand the costs associated with a commercial lease, such as utilities, maintenance, and repairs. Failing to budget for these expenses can lead to unexpected financial burdens that can impact the business’s bottom line.
To avoid this mistake, small business owners should carefully review the lease agreement and budget for all expenses associated with the property. It’s important to factor in all costs, including rent, utilities, maintenance, repairs, and any other expenses outlined in the lease agreement.
5. Not Getting Insurance
Small business owners may fail to get appropriate insurance coverage for their business, which can lead to financial ruin in the event of an accident or other unforeseen event. It’s important for small business owners to obtain adequate insurance coverage to protect their business and assets.
To avoid this mistake, small business owners should work with an insurance professional to determine the appropriate insurance coverage for their business. They should review the lease agreement to ensure that they have the appropriate coverage required by the landlord.
6. Overcommitting
Small business owners may commit to a lease that is too long or too expensive, putting undue strain on the business. It’s important to carefully consider the business’s needs and financial situation when signing a lease agreement.
To avoid this mistake, small business owners should conduct a thorough analysis of their business’s needs and financial situation before signing a lease agreement. They should ensure that the lease agreement aligns with the business’s goals and financial capacity.
7. Ignoring Zoning Laws
Small business owners may not fully understand the zoning laws in their area, which can lead to legal issues if the property is not zoned for the intended business use. It’s important to ensure that the property is zoned appropriately for the business before signing a lease agreement.
To avoid this mistake, small business owners should research the zoning laws in their area and ensure that the property is zoned appropriately for their business. They should work with a commercial real estate attorney to understand the legal implications of the zoning laws and ensure that the lease agreement complies with all applicable laws.
8. Not Inspecting the Property
Small business owners may not fully inspect the property before signing a lease agreement, which can lead to unexpected maintenance or repair costs down the road. It’s important to thoroughly inspect the property to identify any potential issues before signing a lease agreement.
To avoid this mistake, small business owners should conduct a thorough inspection of the property before signing a lease agreement. They should inspect the property for any damage or needed repairs, and negotiate with the landlord to address any issues before signing the lease agreement.
9. Not Considering Future Growth
Small business owners may not consider their business’s future growth when signing a lease agreement, which can lead to the need to relocate the business before the lease term is up. It’s important to consider the business’s future growth when signing a lease agreement.
To avoid this mistake, small business owners should carefully consider their business’s future growth and ensure that the lease agreement allows for flexibility in the event of future expansion. They should negotiate with the landlord to include options for expansion or renewal in the lease agreement.
10. Not Understanding Common Area Maintenance (CAM) Fees
Small business owners may not fully understand the common area maintenance (CAM) fees outlined in the lease agreement, which can lead to unexpected expenses. CAM fees are typically charged by the landlord to cover the costs of maintaining common areas of the property, such as parking lots or landscaping.
To avoid this mistake, small business owners should carefully review the lease agreement to understand the CAM fees and negotiate with the landlord to ensure that they are reasonable and fair.
11. Not Reviewing the Sublease and Assignment Clause
Small business owners may not fully understand the sublease and assignment clause in the lease agreement, which can limit their ability to sublease or assign the lease to another party. It’s important to review and negotiate the sublease and assignment clause to ensure that it aligns with the business’s needs.
To avoid this mistake, small business owners should review the sublease and assignment clause in the lease agreement and negotiate with the landlord to ensure that it allows for flexibility in the event of changes in the business’s needs or ownership.
12. Not Understanding the Renewal Terms
Small business owners may not fully understand the renewal terms outlined in the lease agreement, which can limit their ability to renew the lease or negotiate new terms. It’s important to understand the renewal terms and negotiate with the landlord to ensure that they align with the business’s needs.
To avoid this mistake, small business owners should carefully review the renewal terms in the lease agreement and negotiate with the landlord to ensure that they allow for flexibility in the event of changes in the business’s needs or ownership.
13. Failing to Document Everything
Small business owners may not document all aspects of the lease agreement, which can lead to confusion or legal issues down the road. It’s important to document all aspects of the lease agreement, including any negotiations or agreements made with the landlord.
To avoid this mistake, small business owners should document all aspects of the lease agreement, including any negotiations or agreements made with the landlord. They should keep copies of all correspondence and maintain a record of all payments made.
14. Not Understanding the Termination Clause
Small business owners may not fully understand the termination clause in the lease agreement, which can limit their ability to terminate the lease early or negotiate new terms. It’s important to understand the termination clause and negotiate with the landlord to ensure that it aligns with the business’s needs.
To avoid this mistake, small business owners should carefully review the termination clause in the lease agreement and negotiate with the landlord to ensure that it allows for flexibility in the event of changes in the business’s needs or ownership.
15. Not Consulting with a Commercial Real Estate Attorney
Perhaps the biggest mistake that small business owners make when entering into a commercial lease agreement is not consulting with a commercial real estate attorney. A commercial real estate attorney can provide valuable guidance and advice throughout the leasing process, from reviewing the lease agreement to negotiating terms and addressing any legal issues that arise.
To avoid this mistake, small business owners should work with a commercial real estate attorney throughout the leasing process. An experienced attorney can help ensure that the lease agreement is fair and reasonable, and that it aligns with the business’s needs and goals.
In conclusion, entering into a commercial lease agreement can be a complex and daunting process for small business owners. However, by avoiding these common mistakes and working with a commercial real estate attorney, small business owners can ensure that the lease agreement is fair and reasonable, and that it aligns with the needs and goals of their business.