In previous articles, I dealt with the topics of buying a business and when to incorporate. In this article, I will shed some light on what to consider in signing a commercial lease.
First of all, it is important to get legal advice right from the start. You can do the negotiations but be wary of signing an offer to lease or worse yet, the actual lease, without some input from a lawyer.
In addition to the obvious issues like rent, some basic considerations to ask yourself at the beginning are:
* Are you dealing with a reputable landlord? There is no substitute for due diligence (ie check the track record of the landlord). This can be done with some old fashioned sleuthing like talking to other tenants or those in the local business community.
* What shape is the building in? Find out its age and how many improvements the landlord has done. This can be important if the landlord wants you to be responsible for a portion of repairs but also, because you do not want any downtime for unexpected maintenance.
* Is the location right? Don't just consider the first year but look at the long term. Will it be good in the future, assuming your business grows? Check out the surrounding businesses for compatibility. Finally, try to find out about the history of the uses in that location. (You do not want any bad karma).
* What are the restrictions the landlord wants to write into the lease? For example, are there restrictions re subletting (does the landlord have the final say or must he or she act reasonably)? Are you restricted from changing the business or selling it (common in mall leases). This can be very important if your business does not do well and you have to sell, change the business or in an extreme case, close and sublet the space to another business. However, sometimes, with a successful business that you are re-locating, you might want to make sure that the leases for the other tenants will not conflict with your business. (You do not want a similar business opening up beside your coffee shop). This is especially true with mall or commercial plazas. If there are signage restrictions, how reasonable are they?
* If the landlord is promising inducements and sweeteners (eg no rent for the first month or termination rights), it should be in writing (in the lease). It is dangerous to rely on verbal promises. There is much truth to the saying that the road to hell is paved with good intentions.
* How does the landlord calculate rentable space? This is important as the standard way of calculating rent is on a square foot basis. Try to get the landlord not to count space that is unusable for your business (ie pillars, HVAC systems and etc.).
* What parking is available and are there other businesses that could adversely affect you by taking valuable spots when your customers or clients will need them.
* Make sure that there are no adverse zoning by-law provisions (eg prohibition on certain types of retail business) or other municipal restrictions (eg signage) which can affect you.
Michael Cobb is a partner at the law firm of Cobb & Jones LLP. For more articles, visit the Library page at www.cobbjones.ca.