Before negotiating a lease, make a list of terms that would benefit your business. There are many items in a Lease that can get you in hot water if you don’t consider them before you sign on the dotted line.

Length of Term

A shorter-term lease allows you the flexibility to leave sooner if you are not pleased with the location. A long-term lease can give you long term stability and keep rent increases down, but may tie you to a location that may not be profitable if you outgrow the space.

Avoid Personal Lease Guarantees

Some landlords may insist on a personal guarantee from the business founders if you are a start up company or do not have a business history. Some Landlords will allow a Letter of Credit from your bank. A Letter of Credit may not put your personal assets, as well as business assets at risk.

Don’t Let a Permitted Use Clause Limit Your Business

If your lease includes a permitted use clause, try to make it as broad as possible, even if your intended purpose is initially narrow. Because your business may grow and your plans may change, you want the flexibility to use the space in any reasonable, legal manner.

Make Sure Your Lease Doesn’t Limit Your Improvements

Most form leases provide that the tenant can’t make any alterations or improvements to the premises without the landlord’s consent. Those provisions are typically too restrictive, and you should attempt to negotiate changes. For example, try to get the right to make non-structural changes or changes costing less than $5,000 without the need to obtain the landlord’s consent.

Negotiate Your Lease’s Relocation Clause in Your Favor

A relocation clause gives your landlord the right to move your company to a different location within your office building or complex if a larger tenant requests your space. While your company probably won’t be able to have the relocation clause removed from its lease, it can request three contingencies to the clause. First, ask to have it spelled out that your landlord pays for all moving and renovation costs associated with a relocation move. Second, insist upon the same rent, views, office structure and quality of furnishings and so on in the new space. Finally, require that your landlord give your company at least a month’s notice of the need to relocate.

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Filed under: June 2010

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