A commercial lease will be one of the most important early contracts a new business owner negotiates. Most entrepreneurs find a rental agreement to be the safer and more accessible option when compared with purchasing commercial real estate, but it is still a major commitment that will have a lasting impact on company operations.
The location where they will operate their company will influence what customers they can serve, who will work for them and the overall operating expenses for the organization. Unlike residential leases, which often last for a single year or are month-to-month agreements, a commercial lease is often a multi-year arrangement.
The tenant will have a responsibility to pay rent even if they can no longer make use of the space. A commercial landlord could potentially attempt to collect on all unpaid rents even if the tenant’s business goes under in most cases. It can be a very intimidating decision to commit to multiple years of high-cost rental arrangements. Some entrepreneurs and business owners will seek to protect themselves from multiple years of financial responsibility by adding a special clause to their leases.
Some leases protect tenants from business failure
One of the more popular inclusions in modern employment contracts is the force majeure clause. “Force majeure” is a French phrase that means “the greater power or force.” Essentially, a force majeure clause applies when the circumstances, due to factors outside of an individual’s control, prevent them from continuing to operate the business.
Examples might include social protests that shut down an entire district in the city for weeks on end or international supply chain disruptions caused by drought or flooding. When circumstances outside of an individual’s control directly cause them to shut down or close the business, a force majeure clause in their lease can protect them from the landlord seeking payment for the full duration of the lease.
Small changes can offer substantial protection
Making minor adjustments to lease documents can result in major benefits for the business owner concerned about the future success of their operations and their personal financial responsibilities should the organization fail. Reviewing and carefully negotiating the terms of a commercial lease can help an entrepreneur avoid overextending themselves in a way that might lead to financial devastation or even organizational insolvency.