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Important Considerations Before Signing a Commercial Lease Agreement in New Jersey
A commercial lease agreement in New Jersey is a fine print that outlines the obligations and responsibilities of the landlord and the tenant. The agreement allows the tenant to use the space for business and instead, the landlord receives rent. But, being a legally binding document, a lot goes into this document. You cannot think of it as a standard lease agreement because if you do, then you risk opening your business up for unplanned expenses that are not captured in the lease. Also, as soon as it is signed, the tenant/ lessee has the power to install fixtures and any other necessary equipment necessary for running the business and to create the right business environment.
Considering the risk involved in letting a stranger use your property for business, landlords across the state of New Jersey will run credit checks for the principals of the business. The request to review the credit history is placed with the Secretary of the State’s Office. This is common with tenants requesting long-term leases of between 3 and 5 years.
Knowing that the landlord performs their due diligence to make sure you don’t scam them, what do you need to do to ensure that the landlord meets their obligations or that the terms of the lease are not unfair? Also, what do you need to do to ensure that the lease is right for your business?
Is the leased premise exactly what your business needs to grow? What’s its square footage? To understand the liabilities and rights associated with the leased business premises, you need to check whether or not you have to pay for the repairs and maintenance costs. Regarding the measurements, confirm whether they are those taken from the exterior walls inwards or the interior walls.
Also, confirm with the landlord that a direct competitor will not set up shop next door. Other essential aspects that determine your business needs include the presence of parking space, garages, warehouse or a loading pad. Of course, the presence or absence of these features depends on the kind of business you are running.
If that local is prime for your business given your business success’ reliability on the location, then you should sign a lease only if it gives you the option to renew your lease. while discussing the renewal terms of your business lease agreement, you should also discuss the effects of the renewal financially. Don’t wait until it’s time to renew the lease then you bring up discussions on the money.
Wondering why this is important? Well, it lets you capitalize on a good economy. If you have to negotiate the renewal terms on a later date, you make your business vulnerable because the lease may be terminated when your business is doing well, or you may have to opt for an even expensive lease. Keep in mind that the option to renew the lease in a long-term lease gives you an economic advantage.
Terms of Assignment and subleasing the space in New Jersey
If yours is a retail business, then you know that you might have to sell your business at some point for one reason or the other. Often, this means that you assign the lease to the person you sell the business to or the person who takes over a portion of your business. The big question, however, is – is this acceptable in the lease? Because if it isn’t then your business is bottlenecked.
In most cases, you will be forced to sell off your assets at a throwaway price, losing the resale value of the business. You might also be forced to retain the business until that time that the lease expires. So, when negotiating the terms of the lease, be careful with this clause and make sure that the terms outlined will not cripple your business. Don’t forget that assigning the lease to someone else will not relieve you from liability.
Your Financial Obligations
If a lease is well-written, then it outlines all your financial obligations the base rent, extra expenses, common area maintenance, escalation, and if in a shopping center, the percentage rent payable.
The lease should also outline who is responsible for repairs and maintenance of the HVAC system, the roof, electrical and plumbing systems. Often, landlords prefer that tenants pay the base rent in addition to the property taxes, insurance costs, and the common area maintenance costs (pro rata share). When this happens, the lease signed is a triple net lease. These pro rata costs are, however, hard to determine in a multi-tenant commercial premise. Therefore, your New Jersey commercial lease agreement should outline all the terms for these payments.
If you are confused, know that there are four main types of lease: gross, net (triple/single/double), modified gross, and the percentage lease. In the gross lease, the landlord caters for most of the expenses and the tenant pays a fixed amount. The modified gross lease involves sharing the cost of the operating expenses between the landlord and tenant, while the percentage lease involves payment of a percentage of gross income in addition to the base rent.
Regarding escalation costs that cater to inflation costs, the determination of the amount by which the rent increases could be based on a percentage, a specific figure, or an indexed figure.
Other financial obligations you should be aware of in your business lease agreement include the tenant improvement liability, management/ administrative fees, and other structural components.
Even though landlords will want their tenants to take full liability for defaulted payments, it is not a wise move on the tenant’s end. To limit your liability, opt for a limited guarantee in terms of the terms of the lease, or a financial cap.
The term of the lease may be fixed or periodic. Under the fixed term lease, the end date for the lease is predetermined. However, a periodic lease lacks a predetermined end date, you may renew the lease, the terms may change/rent increased after notice, and either party may terminate the lease by issuing a lease termination notice as per the statutory provisions applicable to commercial property lease agreements.
Other things to consider
Parking, signage, and advertisement
Termination rights following foreclosure of the premise.
To get started with your commercial property lease agreement in Jersey City, Newark, Trenton, Atlantic City, Paterson, Edison, Paramus, Montclair, or any other city in New Jersey, download our free commercial lease agreement forms today.