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Signing a New Contract: How to Avoid 5 of the Most Common Mistakes

[fa icon="calendar"] Jun 8, 2017 4:29:25 PM / by Melissa Krischuk

Melissa Krischuk

Welcome back to our ongoing series dedicated to helping you avoid some of the most common commercial real estate pitfalls.

In our last post we outlined how to avoid five of the biggest mistakes when planning a new lease.

In this post, we’ll focus on five more mistakes to avoid once you get to the contract negotiation and signing stage.

Related Post: Introducing the Free CCP Online Resources Library and Fast Answers Video Series.

 

REMEMBER THAT EVERYTHING IS NEGOTIABLE (REALLY)

Regardless of what the landlord may suggest, there are no “standard business” lease forms or templates. Every contract should be different and tailored to your unique needs, because everything (yes, everything) is negotiable. 

Read the contract carefully and don’t ever sign a lease if there are terms you want to add or change. Your Tenant Representative Broker (TRB) will help with that, and having a trusted, experience Real Estate Lawyer is also critical. 

 

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NEGOTIATE YOUR RIGHT TO RENEW 

This doesn’t mean you must renew, but if you are happy with the size, location and design of the space you’re in, then you will have the right to renew at the previously negotiated price. Further, with a Right to Renew clause in your contract, your landlord cannot automatically kick you out.

Note that your renew-price will typically be set either by the terms of your current lease or “at current market rent” (CMR). There are very specific criteria for determining CMR, so if you choose this direction make sure those criteria are explicitly listed in the contract. Like everything else, the CMR can be negotiated.

 

NEGOTIATE TRANSFER, TERMINATE, AND SUBLEASE CLAUSES

In case your business doesn’t do well, or is sold, assigned or purchased by another entity, you want to make sure there is language in the lease to transfer, terminate or sublease to another tenant — so you don’t get stuck with continuing payments.

Sublease and assignment language is very common. Assignment is when transferring to a new entity, such as after a company is sold.

Make sure your contract explicitly states that all liabilities also transfer to the newly assigned company. If that is not in the contract, you and/or your partners could be responsible for liabilities for the remainder of the term, even if you no longer own the company!

 

ALWAYS GET A REAL ESTATE ATTORNEY TO REVIEW THE CONTRACT

Remember, there is NO standard business lease form or template. Every contract should be unique (and will be, if negotiated properly) based on your requirements.

If you have an attorney that understands your real estate needs and business plan, they can help put language into the contract that is very specific to your situation and phrased in a way that’s in your favor.

If they think they can get away with it, landlords will usually first offer you a standardized lease that is written entirely in their favor. Too often we meet with new clients who have previously signed these types of contracts outright, without showing it to their lawyer first. Don’t be that person. Remember, your broker is not a lawyer!

 

NEGOTIATE THE LANDLORD’S RIGHT TO RELOCATE YOU AND ASSOCIATED COSTS

Does your contract state that the landlord has the right to relocate you and perhaps even charge you for the associated costs? If stated in the contract, the landlord may even be able to move you at any time. Yes, it happens.

For example, perhaps another company wants to expand to the entire floor on which you’re currently leasing. If the contract states it, the landlord has the right to move you off that floor at will, so the other tenant can expand immediately, and the landlord can even make you pay for the entire cost of refitting the space you’re moving into.

If for some reason you agree to include a Landlord’s Right to Relocate clause in your contract, always make sure the landlord must give you reasonable notice to relocate. You want to make sure that you have enough time to move, and that ALL costs, such as relocating I.T. (e.g. wiring, computers, servers, phones), all the way down to your business cards — literally, ALL the costs to move — are covered by the landlord.

Don’t be afraid to ask for what you want and need!

 

FOR NEXT TIME

I hope you’ve found this information useful. We’ve got a lot more to share. In our next post, we’ll focus on how to spot a bad lease deal before it impacts your business. See you there. 


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Topics: Metro Denver, Commercial Real Estate, New Tenant Series, Avoiding Mistakes

Melissa Krischuk

Written by Melissa Krischuk