Tips: Signing a Lease

Negotiate the Best Lease for Your Business
Before negotiating terms of a lease, make a list of terms that would benefit your business. For example, if you are opening a jewelry store in a mall, the lease should stipulate that no other, or only one other jewelry store, can open in the mall during the term of your lease. If you are expecting to generate walk-in business, you will need terms that allow you to put up necessary signage.

Sign the Right Lease for Your Needs
A shorter-term lease allows you the flexibility to pack up and leave sooner if you are not pleased with the location. A long-term lease can give you long term stability and keep rent increases down, but may tie you to a location that may not be profitable or one, which your business may outgrow. There are generally ways to break any lease, but it’s not your intent going into such an agreement to seek ways to get out.

Be Wary of Assignment Clauses in Your Lease
Be particularly leery of an assignment clause that says a change in more than 50 percent of the company's stock ownership will be deemed to be an assignment that is prohibited without the landlord's approval. A prohibited assignment can result in the landlord terminating a favorable lease. As the company grows and new people invest in the company, this clause can be inadvertently triggered.

Avoid Personal Lease Guarantees Whenever Possible
Some landlords may insist on a personal guarantee from the business founders if the tenant will be a corporation or other entity. Try to avoid this situation—it puts your personal, as well as business, assets at risk.

Limit CPI-Based Rent Increases
Sometimes, landlords insist on annual increases based upon the percentage increases in the Consumer Price Index (CPI). If you are confronted with such a request, do two things. First, try to arrange that the CPI does not kick in for at least 2 years. Second, try to get a cap on the amount of each year's increase (for example, no more than a 3 percent increase in any year). Don't Let a Permitted Use Clause Limit Your Business
If your lease includes a permitted use clause, try to make it as broad as possible, even if your intended purpose is initially narrow. Because your business may grow and your plans may change, you want the flexibility to use the space in any reasonable, legal manner.

Make Sure Your Lease Doesn't Limit Your Improvements
Most form leases provide that the tenant can't make any alterations or improvements to the premises without the landlord's consent. Those provisions are typically too restrictive, and you should attempt to negotiate changes. For example, try to get the right to make non-structural changes or changes costing less than $2500 without the need to obtain the landlord's consent.

Negotiate Your Lease's Relocation Clause in Your Favor
A relocation clause gives your landlord the right to move your company to a different location within your office building or complex if a larger tenant requests your space. While your company probably won't be able to have the relocation clause removed from its lease, it can request three contingencies to the clause. First, ask to have it spelled out that your landlord pays for all moving and renovation costs associated with a relocation move. Second, insist upon the same rent, views, office structure and quality of furnishings and so on in the new space. Finally, require that your landlord give your company at least a month's notice of the need to relocate.