Small-business Q&A: No such thing as 'standard lease'
Q: I found space to lease for my new washateria, and the landlord has given me her standard lease contract. How do I know if I should just sign it?
A: Before you sign anything, make sure you understand and agree with the terms of the contract.
“There is no such thing as a ‘standard lease,’ and landlords almost always negotiate,” says Benjamin Miller, who practices business and real estate law in Houston. Don’t lose sight of the fact that the “Standard Form Lease” represents the landlord’s wish list and, if not appropriately modified, may not serve your interests if issues arise.
A lease is much like any business agreement in that it sets out parameters of a business relationship. You cannot easily break or change a commercial lease. It is legally binding.
When everything goes as planned, most any lease will serve the parties well. The true test occurs when there are hiccups.
There are, in general, three kinds of commercial leases. With a gross lease, the renter pays the landlord a fixed rent. It is up to the landlord to pay all the expenses of operating the building. In a triple net, or NNN, lease, the tenant not only pays base rent, but also part of the building’s operating costs. These costs include property taxes, insurance and common area maintenance, or CAM. Hybrid leases have features of both.
NNN costs are shared according to the percentage of the tenant’s square footage to the total building square footage. So, Miller advises, “Pay attention to what is included in NNN costs and get the right to audit the landlord’s cost records.”
CAM is generally the amount of additional rent charged to the tenant to maintain common areas shared by all the tenants and from which all tenants benefit. Examples include: repairs, janitorial and trash services, and personnel costs associated with the property. Most often, this does not include capital improvements, tenant build-out expenses, legal fees, costs for services to other tenants and commissions to brokers.
Consider having your lease contract reviewed by an experienced attorney.
Ron Consolino is a management counselor for SCORE, Counselors to America’s Small Business, a volunteer, nonprofit association and a partner of the U.S. Small Business Association. Send questions to email@example.com.