Back when I practiced law full time (before I came to my senses!) I had a client come into my office with one complaint: He wanted to get out of his lease. It turns out that the poor guy signed a five year lease for a burger joint and the only way he could make ends meet was to close on weekends and work the festival circuit. So he was essentially working seven days a week in order to break even.
Unfortunately, I couldn't really help him much. Most leases are drawn up by the landlord's lawyer for the landlord's benefit and that was the case here. It was airtight. My client was stuck for another year and a half and there was nothing he could do about it.
So what I want to do in this blog and the next is help you avoid that unenviable fate. This week we will look at important legal considerations in a lease and next week we will examine how to get the best deal possible.
Here's what to be aware of:
Length: You want the term long enough to establish your business, but not so long that you are locked in if your venture doesn't work out. A year or two, with an option or two for a renewal is usually a good idea.
What's included? Consider
- Square footage. Most commercial office or retail space is quoted by square foot per year. So a 1,000 square foot retail space with an asking price of $15 per square foot would cost $15,000 per year, or $1,250 per month.
- Net or gross? A “triple net lease” is one where the renter pays, in addition to rent, all operating expenses too. So, with a triple-net lease, you must be very clear about what is, and is not, included.
- Utilities: Under some leases, the tenant is required to purchase the utilities from the landlord. If so, be sure that the lease grants you the right to audit your utility bill.
Zoning: Cities usually zone buildings and areas into residential, commercial, industrial, and mixed-use areas. You must be sure that the location you want is zoned appropriately for the business you want to start. Check with your city before signing any contract. Luckily, even if it's not zoned as you want, it is possible to get a “variance” from the city. A variance is as the name suggests, a change in the normal rules. Your lawyer can help with this.
City or county restrictions: Find out if there are other legal restrictions that may affect your business. For example, some municipalities limit the number of certain types of business, such as cafes or fast food franchises, to certain areas. Other restrictions may include that your business provide off-street parking, or close at a certain time, or limit the size and type of signs you may have, etc. Your city should have a business development office that can answer these sorts of questions.
Contract restrictions: In malls and other retail complexes, the lease or CC&Rs may limit what you can do. For example, in a certain shopping centers, there may be a limit of no more than one news kiosk, or two burger joints.
Yes, considering and researching the legal intricacies of your location and lease can be a lot of work, but it beats walking into a lawyer's office in two years, looking for help on how to get out of that bum lease you signed.