As the saying goes, “location, location, location.” The space where you do business can often make you or break you. Tenants need to be as informed as possible about what they’re getting into. Here are five things every business tenant should know before signing on the dotted line:
- Insist on a Written Lease
A lease is a contract that makes clear what your obligations and rights are. Renting commercial property is very different from residential leasing. There are fewer protections provided to commercial tenants than for residential tenants. That puts much more at stake when there’s no contract. For example, under a month-to-month lease, with no written contract that says otherwise, a landlord can cancel your lease with as little as 10 days’ notice. The landlord does not need any reason to end the lease. If you don’t want to be forced to relocate on such short notice, you MUST have the landlord promise, in writing, to use different terms. Do not accept a “handshake” agreement. Insist on a written document; it will be the most important guardian of your rights.
- Read and Understand the Lease
Where commercial leases are concerned, you need to make the investment to read what you sign. Because your rights are dependent upon the lease, you should read it fully and carefully. The law assumes you did, and there’s no excuse for not doing so. It’s also important to understand every part of your lease. What you don’t know can hurt you!
- Don’t Be Afraid to Negotiate
The law automatically presumes you fully negotiated for all the terms of your lease, whether or not you actually did. Keep in mind that an important function of leases is to allocate the risks involved. Be especially proactive in negotiating how any increases in rent will be calculated. Many landlords rely on the Consumer Price Index (or “CPI”), as a measure of how much rent will increase. The CPI is a data set, which tracks changes in the prices of goods and services. CPI data is compiled into many different tables. Specify exactly what CPI data table your lease is referring to. The difference can be very dramatic. Don’t allow any ambiguity on this or any other important points. Think through what both you and the landlord can live with, and describe it carefully in the lease.
- Don’t Get Behind
Once you’ve entered into a commercial lease, it’s important to plan carefully so that you don’t get behind on rent. Unless a written lease gives more time, a landlord can lock out a commercial tenant that is just five days behind on rent. The landlord doesn’t need to give any warning beforehand and doesn’t need a court order. The landlord can simply change the locks and take over. Further, the landlord has a right to seize any non-exempt belongings of the tenant (such as inventory, equipment, materials), and hold it until the tenant pays past-due rent. If rent isn’t paid within 60 days, the landlord can sell the tenant’s belongings at an auction to pay past-due rent. Many tenants have mistakenly waited to deal with past-due rent until it’s too late, only to discover that the landlord had already taken back the property and all of the tenant’s merchandise with it. Don’t get behind. Or, if you anticipate that you won’t be able to make rent payments, seek help as soon as possible.
- Get Help Early
Commercial leasing is complicated, with many tricky nuances. Without guidance, even veteran businesspeople can overlook important points. If you feel you’re in over your head, seek professional guidance. It’s far better to get help before a problem gets out of hand and ends up in a lawsuit, which could cost thousands of dollars to resolve. With commercial leases, an ounce of prevention is worth many pounds of cure. FBN
By Brian Y. Furuya
Brian Y. Furuya began work with Aspey, Watkins & Diesel, P.L.L.C. as a law clerk in 2006 and joined the law firm as an attorney in 2007. Since joining the firm, Furuya has been named to The National Trial Lawyers Top 40 Under 40. Furuya is admitted to practice in all state and federal courts in Arizona and before the Navajo Nation.
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