Beware the pitfalls of commercial leases

Congratulations – you’ve found the perfect premises to lease for your brand-new restaurant. Hunting for the right place can be an exhausting task, but don’t let that sudden wave of relief blur your common sense. Now is the time to focus, because now is the time to consider the LEASE. Never sign a lease until you fully understand what you’re signing. Leases contain paragraph after paragraph of provisions, conditions, and clauses that if overlooked, or misunderstood, could have terrible results for you further down the line.

Do not presume that the commercial lease that you’re about to sign has your best interests at heart. Commercial leases are often written by lawyers who are representing the landlord. The boilerplate lease you’re handed was drawn up with the landlords’ best interests in mind, and may contain provisions that can mean significant costs or legal implications for you in the future. Below we point out some of those provisions that may appear listed in your lease, and where you should seek out further clarification from your landlord before you even think of signing.

Measurement of the premises

It’s always good to verify the measurements of the premises you’ll be renting against those stated in the lease, otherwise you could you be paying for square footage that’s simply not there. Also, are you sharing any areas of your premises with other lease holders? What are those common areas, will you be paying for them as part of your lease, or will you have the right to use them? What is your commitment to those common areas – will you be required to maintain them or repair anything that gets damaged? All these points should be clarified in your lease and agreed by both parties.

Lease Extension

Your mind will of course be focused on just getting your new restaurant up and running. But what if things go really well and you want to continue leasing the premises you’re in? It may be premature even before you’ve started doing business, but does the lease provide for you to extend your contract with the landlord should you want to? Ensuring that your lease contains an option to renew will provide peace of mind later down the line.

Tenant Improvement allowance

Does your lease provide specific details of tenant improvement allowance the landlord will provide to help you improve the condition and facilities of the premises? Beware of vague or poorly written provisions that say the landlord will commit to provide. Starting a new business is costly in even the most ideal situation and any improvements to dining spaces and kitchens will be expensive. Don’t underestimate costs when negotiating with your landlord and push for as much free rent as possible.

Tenant Self Help

Is there provision in the lease for you to undertake emergency work to the premises when the landlord cannot provide a quick resolution? How will you be reimbursed? Landlords are often reluctant to include tenant self-help clauses within the lease as it gives the tenant control of the cost of any work that is required. It’s essential that you have provisions in place within the lease that cover you if any emergency happens; so that work will be carried out in a timely manner to avoid any impact on your business operations.

Assigning and Subletting

What if business isn’t good? Your lease should have a provision which allows you to sublet, or assign, your lease. Without this you will not be able to sell your business or transfer the lease. This clause is a must.

Help in navigating and agreeing a lease

The above are just a random selection of lease provisions to be aware of. Making sure that you negotiate the best possible lease agreement before you sign is top priority. But you know nothing about commercial leases, so how exactly are you going to achieve this? Click on our next blog post where we’ll look at the benefits of using an experienced commercial realtor.

CHI is dedicated to keeping up with local and national trends in the Restaurant Industry to help serve our customers better and keep them one step ahead. If you are interested in opening, purchasing, or selling a restaurant CHI Real Estate can help. Get in touch with our team today.