Commercial Office Leases for Small Businesses

DATE: 2006-10-19

Most businesses require leased space. And as your business grows, you may need to add additional space for more people or increased operations. A lease agreement can constitute a significant financial commitment for a business. Yet many people blindly sign leases that bind their business for many years without any meaningful attempt to negotiate the terms of the lease.

When you find a great space for the business and are ready to lease, the landlord typically hands you a preprinted agreement that looks (for all the world) just the way leases were meant to look. The landlord is likely to call this the standard lease, as if the perfect form of a lease agreement had been chiseled in stone eons ago.

Pay attention here. This form is undoubtedly totally one-sided in favor of the landlord. No "standard" lease exists. And regardless of whether the form looks standard or preprinted, don’t be afraid to carefully review and negotiate the lease.

Your ability to negotiate changes to an office lease depends on how much leverage you have. Are other companies vying for the space? Has the space been vacant a long time? Are you willing to pay a good rent? Let’s face it: if Microsoft and General Motors are about to engage in a bidding war for the same prime space you’re interested in, all your negotiating skills mean zilch (zero, in technical legal terms).

Here are the key issues to negotiating leases:

 The amount of the rent, including any free rent granted to the tenant
 The permitted use of the premises
 The particular space leased
 Operating costs charged to the tenant
 Any tenant improvements to be paid by the landlord
 Responsibility for repairs and maintenance
 Rights to assignment and subletting by the tenant
 Right to renew the lease
 Right to cancel or leave
 Insurance requirements
 Whether any personal guarantees or security deposit is required
 Option for additional space if needed by the tenant

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