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It might surprise you to learn that approximately 20% of small businesses fail within the first year. A key moment when companies struggle to stay afloat is when they scale, as improper expansion can drain their resources.
One of the best ways to ensure you scale fluidly is by looking for a commercial space that's suitable for your business. Before signing a commercial lease, it's essential to thoroughly understand the lease terms.
This will guarantee you avoid pitfalls you may have otherwise encountered. Let's look at the key clauses and terms you should watch for during lease negotiations.
Proposed Rent
Never overlook the proposed rent before signing your agreement. While this might seem obvious, many people neglect this obligation while exploring the contract's other terms.
The last thing you want to do is sign an agreement that lists a different monthly rent than what was advertised. In some cases, this can lead to you paying thousands of extra dollars per year.
Security Deposit
Your security deposit will vary highly depending on your landlord. Some security deposits will be substantial, while others will be much more reasonable.
The primary factor that dictates the amount is the tenant's perceived risk. For instance, someone with a poor business credit score or lackluster rental history will likely need to pay a larger security deposit than someone with a pristine record.
Break Clause
If you need to break your lease, there are terms you'll need to satisfy. Depending on your agreement, you might need to pay enough money to cover a certain number of months' rent.
To clarify, your agreement could outline that you need to pay the equivalent of three months' worth of rent before you break your lease. This can be difficult to budget for if it catches you off guard, so always ask about valid lease break clauses before signing anything.
Subleasing
In some cases, it's possible to sublease your commercial space to someone else. This involves finding someone to use the space and having them pay you rent.
Not all property owners will allow subleasing, and ones who do often have strict terms. For instance, they might limit the amount you can charge tenants who sublease.
Access Rights
Certain landlords may have rules regarding who's able to access the property. This isn't overly common, but it's something to stay aware of. A common scenario is a landlord preventing other business owners from working in the commercial space.
Renewal Rights
Renewals don't always happen automatically. Certain criteria might need to be met before lease renewal can occur.
It's in the owner's best interest to simplify signed lease renewals, so you likely won't have to overcome many obstacles. Ideally, renewals will happen automatically and without incident.
Never Overlook Lease Negotiations
The tips in this guide will help ensure you navigate your lease negotiations appropriately and find terms that are suitable for your business. From here, you can take your company's performance to the next level.
PMI Palmetto offers premier property management services for those who own property in Columbia, South Carolina. We strive to exceed all expectations and simplify your obligations as a landlord. You'll learn more about how we can help when you schedule a free rental analysis today.
