The straightforward answer is no. You don't need a commercial lease attorney to review the lease before signing. But should you? Signing a lease agreement is a critical consideration for your business.
Unfortunately, many business operators fail to give their commercial lease the proper attention, choosing to direct their attention elsewhere. But their first mistake is failing to ask themselves if they need an attorney for a commercial lease.
A commercial lease attorney is essential when leasing a commercial space. First, they're familiar with lease agreements and can direct you on what type of lease best fits your business. Second, they can advise you on zoning and lease clauses that might substantially impact your company.
Most importantly, they can help negotiate your lease to get your business off to the right start.
How Much Does Your Lease Require You to Pay?
You need to know what you pay monthly precisely. That may seem obvious, but commercial leases can have many moving parts.
First, there's the lease term. A short-term lease provides some insurance in case your business fails. On the other hand, a long-term lease may present better terms.
Second, you need to have your landlord address expenses and how they get paid. That list of costs may be much greater than you anticipate:
- Insurance
- Property taxes
- Building maintenance
- Repairs
- Security
- Parking
- Utilities
- Modifications
In most instances, the type of commercial lease you sign determines the allocation of expenses. Nonetheless, you need to know or risk getting hit with a cost you didn't anticipate. And it's another area where you need an attorney to review a commercial lease before signing.
Let's review standard commercial leases.
7 Types of Commercial Leases
There's more than one type of commercial lease. Each determines your payment responsibilities as a tenant. So, you need to choose which type best fits your needs.
Here's a look at seven lease options:
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Full-Service Lease
This agreement, referred to as a gross lease, requires you to pay base rent and utilities. Typically, the landlord handles building expenses like maintenance, insurance, and real estate taxes.
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Net Lease
With a net lease, you pay a proportionate share of operating expenses to cover common area maintenance (CAM), property taxes, and insurance. Types of net leases include single, double, and triple.
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Single Net Lease
With an N lease, you pay rent, utilities, and property taxes while the landlord pays insurance and maintenance expenses.
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Double Net Lease
An NN requires you to pay rent, utilities, property taxes, and building insurance. The landlord takes care of maintenance costs. Base rent is typically lower with a double net lease because you're responsible for most additional expenses.
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Triple Net Lease
You pay for rent and utilities. In addition, you must pay a pro-rated share of maintenance, insurance, and property taxes. Like an NN lease, an NNN lease generally has a reduced rental cost. Although rare, there's also an absolute NNN lease where you pay for everything – the landlord has no responsibility.
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Modified Gross Lease
As the tenant, you pay a portion of the operating costs. Typically, those costs reflect the percentage of the building space you occupy. So, for example, if you occupy 50% of the building, you pay 50% of the operating costs.
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Percentage Lease
In addition to base rent, you pay a percentage of gross revenue. A percentage lease generally applies to retail malls. In most instances, the landlord requests seven percent of sales once past a threshold.
So as you can see, you need to know what each lease type means to your business. And why you might need a commercial lease attorney to wade through the options and negotiate lease terms.
Key Clauses in Commercial Leases Where an Attorney Can Help
Apart from spelling out monthly expenses, your lease agreement covers essential clauses that govern your rights as a tenant.
You must understand what each means to you and your business. And it's another reason you likely need a good a commercial lease attorney to review the agreement before you put pen to paper.
The most relevant clauses include:
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Lease Term
When does the term start and end? What happens if the business closes or you elect to relocate? Often, the lease term includes when you can enter the building, when rent is due when to secure insurance, etc. The clause also determines when and how to renew the lease terms.
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Premises Clause
This clause identifies the space you occupy as a tenant. If you're renting the entire building, it's reasonably straightforward. However, if you're renting a portion of the building, the premises clause details that space. This clause is a requirement for shared spaces.
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Use Clause
A use clause defines how your business can use the space. So, you need to be aware of any limitations it places on your business, including the products or services you offer.
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Rent Clause
The most apparent purpose of the rent clause is to determine when and how you pay the rent and what operating costs fall on you. In addition, however, the clause should include rent escalation. For example, when an escalation occurs, how it's determined, and the allowable increase.
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Alterations and Improvements
A tenant often requires modifications before moving into a leased space. So, this clause presents who is responsible for the cost. It also determines your right to alter the area in the future, the process required, and financial responsibilities.
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Insurance Clause
The most common insurance types include property and liability, rental interruption, and leasehold insurance.
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Transfer Clause
This clause is essential if your business fails or you move to another location. Typically, it involves the lease assignment to a new tenant or subletting.
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Personal Exposure
Some leases require personal guarantees. You should be particularly wary of providing that guarantee. Always seek advice from a commercial lease attorney before agreeing to any such clause.
Each of these clauses can create issues down the road if you don't address them adequately right from the get-go. So, it's essential to have an attorney review the commercial lease and all associated clauses.
Commercial Leasing Concerns in Pennsylvania
In Pennsylvania, it's critical to determine whether your business adheres to regulations regarding permitted use. For example, nearly 60 percent of PA townships and boroughs have zoning ordinances.
As a result, you may sign a lease only to learn that a township ordinance forbids your type of business from operating in the zone.
Moreover, municipal zoning regulations often use different names for business districts. For instance, one municipality may use Business General, another may use Commercial General, and another may use Business Commercial.
Finally, the Pennsylvania Uniform Construction Code (UCC) mandates a statewide building code that more than 90 percent of the Commonwealth's municipal corporations enforce. Like permitted use, each municipality determines whether to use the UCC within its jurisdiction.
Having a commercial lease attorney familiar with these concerns can save a lot of trouble and money.
So, Do You Need an Attorney for a Commercial Lease?
If you didn't think so, perhaps you can now see why enlisting a commercial lease attorney makes excellent sense, if not making it mandatory.
Many issues within a commercial lease agreement may not seem important at the outset but could prove costly in the long term. The first time small business owners have a real estate attorney review a lease is frequently after an issue arises.
Unfortunately, you cannot change the lease terms with the signed lease agreement. After consulting with a commercial lease attorney, business owners are surprised at what the lease means or the included terms.
While small business owners may not view legal review and negotiation of the lease agreement as an essential investment, it can often prove indispensable in the future.
Small businesses can often secure more favorable terms with negotiations before signing the lease. And remember, with commercial leases, terms are almost always negotiable.
Talk to a Commercial Lease Attorney at Our Local Law Firm
At a minimum, having a commercial lease attorney near you in Bucks County or Montgomery County, PA review and explain the lease terms dramatically assists you in understanding options and ramifications.
True, a legal review of a lease agreement presents another startup cost for a small business. However, the benefits of reviewing the lease agreement before signing it are significant and can prevent headaches in the future. And that's usually money well spent.
We have law offices in Doylestown and Norristown, PA, and another in Cherry Hill, NJ. Our firm can support your business with various business concerns, including business formation, real estate, and business litigation.
For more information, contact Kevin Cornish at (610) 275-0700 or by email at kcornish@highswartz.com.
The information above is general: we recommend you consult an attorney regarding your circumstances. The content of this information is not meant to be considered legal advice or a substitute for legal representation.