From start-ups looking to legitimize their brand and professional presence to established companies that need to expand or relocate, negotiating a favorable commercial lease is critical for business success.
Leasing space is typically one of the top three major expenses business owners face. However, even the most ideal-seeming location may become a liability if the contract itself does not include certain key tenant protections.
1. Ensuring the lease is renewable
A commercial contract may or may not include provisions for extending the original lease. Whether signing a short or long-term agreement, business owners should make sure the contract includes a renewal rights clause enabling the company to stay in the same location if desired.
2. Securing right of first refusal
In some cases, a real estate owner may receive a third-party offer to purchase a property currently under lease. To avoid the potential need to relocate, business owners entering a contract on a promising location may want to negotiate for a right of first refusal.
Under a typical ROFR, the tenant receives notification of any third-party purchase offers. The tenant then has the right to match the price and terms offered and buy the property themselves.
3. Safeguarding against early termination
Even if a company is currently thriving, there is always a possibility that the business will need to relocate, downsize or face other unexpected financial difficulties before the lease expires.
When negotiating a contract, business owners may want to request specific termination terms that allow for payment of a cancellation penalty in lieu of the remaining rent.
