What to consider before buying commercial real estate

A watertight commercial lease agreement is a must-have document for property and business owners alike. Being a legally binding agreement, a commercial lease needs to be accurately drafted within the California commercial rental property laws. In addition, it must be updated on a regular basis to ensure that landlord-tenant disputes are kept to a minimum. Understanding the components of a commercial lease agreement is critical to the smooth relations between the tenant and the landlord. Here are some of the provisions that should be included in a commercial lease agreement. The parties to the contract Every contract must clearly outline the parties to it. While signing the agreement, it is important that you do so on behalf of your business rather than as an individual. It is not unusual for a commercial lease to require a personal guarantee. If you are the business owner, it is important that you find out the limitations of the personal guarantee such as time or dollar limitations. Contract terms While most residential lease contracts are valid for 12 months, commercial lease contracts can last for as long as 10 years or even more. Before signing a commercial lease contract, it is important that you consider both the initial term as well as the renewal rights. A lease contract might automatically grant renewal rights to the tenant while others may require both parties’ mutual consent before renewal. While considering terms, it is also important that you understand what will happen to the rental payments upon renewal. Rent payment terms Besides negotiating the rent amount it is important that both parties review other expenses related to the property in question and clearly state who will pay for them. Common expenses in commercial property may include maintenance fees, utilities, taxes, and insurance. Since these expenses are usually passed on to the tenants, it is important to understand how they are calculated and divided among the existing tenants. A lease contract outlines the duties and responsibilities of both parties and minimizes disputes. Before signing a commercial lease contract, it is important that you understand the provisions you are getting into.

After identifying your business premises, you may want to sign the lease and secure the property immediately. However, it may not be the best way to go about things. Even if the landlord asks you to sign a standard agreement, it is in your best interests to refrain from signing any legally binding contract before carefully reviewing it. Ensuring that your lease agreement does not contravene local property laws is a good place to start. Then you need to understand all the terms and conditions in the agreement, especially those masked in legal jargon. Below are some terms to look out for, and if they are part of your lease agreement, you should consider not signing. 1. Making your security deposit non-refundable Most landlords ask for a one to three-month deposit, but it is usually refundable upon the end of the contract. Watch out for clauses that imply you may not get it back. 2. Granting the landlord unlimited access As the tenant, you have a right to privacy and quiet enjoyment of the property leased. Don’t sign a lease that gives the landlord unrestricted access to the property whenever they wish. 3. Requiring the tenant to be responsible for all maintenance You should not sign a lease that puts all maintenance responsibility on yourself. The landlord should cover maintenance costs that make the property habitable such as a leaking roof or plumbing issues. Agreeing to bear all expenses related to maintenance could be a costly decision for you or your business if anything goes wrong. Protecting yourself means being conversant with real estate law pertaining to lease agreements. Doing so will ensure that the lease you sign is not a burden for you in the future.

Leasing out commercial premises can bring in good money. Yet, if your lease agreement is not up to scratch, the cost to your tranquility and finances can leave you wishing you had never bothered. When you build property, you have a vision of how people will use it. To ensure that is what happens, you need to translate the thoughts from your head to paper. Expecting a client to abide by something you failed to specify is asking for trouble, and if it goes to court, you would probably lose. The clearer a lease agreement, the less likely you have problems Here are a few things to bear in mind when drawing up a commercial lease: Clarify exclusions: If bills and maintenance are extra, you need to say so in the agreement. Only putting what you do include increases the chance of a misunderstanding. Clarify time and price restrictions: You plan to rent the premises for a year to a local restauranteur to get the place a name, then, once customers know this is the building to come for great food, raise the rent. Defining the length of the contract and your options to raise the price is crucial from the outset. Clarify the types of business you will accept: If you envision your new mall having a classy vibe, you need to think carefully about how you word your contract. You cannot discriminate based on class or income. Yet, you can include careful wording to ensure no one sets up fast food joints and sex shops in your mall. Getting help to ensure the wording of your commercial lease agreement covers everything you need is far easier than dealing with the fallout of a lease dispute because it does not.