Things to Consider Before Signing a Commercial Lease Agreement in Missouri
Commercial leases are inevitable requirements for most business. Unfortunately, most business owners rush into signing the leases without understanding their suitability and compatibility with their business needs. Once signed, you have committed to do as it says in the lease. To avoid pitfalls and costly mistakes that may tie down your business, there are numerous things you should be aware of to reduce your overall risk. With rent being the biggest expense your business will incur, it makes sense to exercise a little more caution.
Note: A Missouri commercial lease agreement is also called an office lease agreement or a commercial property lease agreement.
How long is the lease?
First, figure out how long you’ll need the space for. If you are scaling up and have been in business for long, then you should negotiate a longer contract. Note that long-term contracts are those that are more than 5 years old and the short term leases spanning a period ranging from a few months to 5 years is preferable for smaller businesses or startups.
Once you’ve established the lease term that best fits your business, you will be able to negotiate for terms like free rent or renewal of the lease every three years. Keep in mind that you won that you will not have the flexibility to negotiate for favorable terms when you do not know what your business needs are or what they will be. A startup is unstable, and a short-term business lease agreement is preferable.
Also, on lease terms, you will come across fixed term and periodic lease. Choosing one over the other depends on the stability of the business and whether or not the landlord wishes to change the terms of the lease too often.
A fixed term lease has a predetermined end date, and the terms of the lease are unchanged during that time. The periodic lease, on the other hand, lacks a definite end date, is automatically renewed, and either party has to give notice if they want to terminate the lease.
Often, the tenant will renovate the rental space so that it fits the needs of their business. Doing this to a newly leased property often results in an improved value of the property. Since the improvement to the property will be beneficial to the landlord and the tenant, the landlord might have to pay for the improvement or at least a part of it. This is one of the negotiable provisions in the Missouri commercial lease agreement. The value of the tenant improvement is per square feet. Note that this allowance might be absent or difficult to negotiate if the commercial property is in high demand.
Rent, Expenses, escalations, and Security Deposits
The amount payable as rent depends on the extra expenses you are responsible for. And, this is tied back to the type of lease you choose. There are four main types of leases:
The Gross Lease: the tenant pays a fixed amount monthly. The amount is inclusive of the base rent and operating expenses for the property.
The Net Lease: on top of the base rent, a tenant has to pay for some or all of the operating expenses for the commercial property. The expenses are mainly taxes, the insurance, and CAM (common area maintenance). The net lease can be single, double or triple. The Triple net lease is the most common net lease, and it involves payment of the base rent, utilities, janitorial expenses, property taxes, CAM and property insurance.
Modified Gross Lease: this is a type of lease where the tenant pays a portion of the property expenses on top of the base rent.
Percentage lease: on top of the base rent, the tenant has to pay the landlord a portion of their gross income. It a commercial property lease agreement common with shopping centers and malls.
In most cases, the security deposit is one month’s deposit.
This is a term that refers to the legal provision that allows tenants to increase the rent they charge every few years to counter the effects of inflation. Escalations increase over time. The value of the escalation will change depending on the method used to calculate it. The value may be a specific amount, an indexed value, or a specific percentage.
Do you have the option to sublease the property should the need arise? Can you assign the third party the whole lease when you sublease? Will you be obligated if you sublease the space?
Can you renew your lease? How will the terms of the lease change when the lease is renewed? Since renewing a lease gives you security and prevents loss of that prime space in future, you should ensure that the lease has a provision for renewal indicating when you should give a lease renewal notice.
Provisions for Relocation
Will the landlord cater for the moving costs if they want you to relocate to different commercial property? Will the terms of the lease change? How about the renovation costs? Before signing a lease, make sure the terms are fair and that you won’t have to incur extra costs from the relocation.
So, there you have it! Details you should review before you sign a commercial lease agreement in Missouri.
Ready to sign one? Download our free commercial lease agreement forms accessible online form Ozark, St. Louis, Branson, Columbia, Jefferson City, Joplin, Independence or any other city in Missouri.