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Things You Should Consider Before You Sign the Commercial Lease Agreement in Utah
A commercial lease agreement refers to a legally binding document that recognizes the temporary transfer of the rights to use commercial property for business from a landlord or lessor to a tenant or a lessee. In exchange for the right to use the space for specific or unspecified renewable time, the tenant pays rent and they may or may not pay for other property expenses. The lease agreement gives the tenant superior leverage and the right to use the space for any legal use. This document is also called a commercial real estate lease agreement or a business lease agreement.
Once you sign the contract, it shows that you are committed to its terms. What this means is that you should not sign the lease blindly. Take note of the terms of the lease, review and negotiate the terms that appear unfavorable or the ones that may curtail your business growth. Some of the elements to review include:
The terms of the lease
By now, you know that the commercial leases fall into two main categories: the short-term leases and the long-term leases. Your choice of one over the other will largely depend on the state of your business and how far along it is in the growth curve. Long-term leases work well for the established businesses while startups and small business fare well with the short-term leases. But, what happens when you want a lease that gives you the flexibility to grow but you have to start small? In this case, a short-term lease with the option to renew is preferable. However, you need to make sure that these terms and the renewal options are provided for in the original lease before you sign it. If you have signed a commercial lease agreement in Utah before, then you know that breaking a lease or having to sign a new lease at any point affects the business severely.
Besides the length of the lease, the terms of the lease may also be fixed or periodic. The fixed term lease has a predetermined end date, and if it’s provided for in the lease, the terms may or may not change, and the rent may increase. With a fixed end date, you don’t need to issue a lease termination notice because the lease will expire naturally.
On the other hand, there is the periodic lease. If you are looking for a Utah commercial lease agreement that lets you renew your lease automatically and periodically, then the periodic lease should be on top of your list. This lease also lets you terminate the leased at any time by issuing a timely termination notice. Often, the terms of the periodic lease change during the lease renewal period. One of the expected changes is the increase in the rent charge.
How much rent you pay monthly or annually depends on the type of lease you negotiate and agree on. There are four main types of leases.
Gross Lease: this is a common lease that allows you to pay a fixed amount in rent, monthly. While the fixed amount is often made of the base rent, a sneaky landlord may include a few expenses.
Triple Net Lease: there also are single and double net leases, but this is the most common option preferred by landlords. With it, a tenant pays the base rent in addition to the cost of property taxes, insurance premiums, common area maintenance costs (CAM), utilities, and janitorial expenses. This is the most expensive lease.
Modified Gross Lease: this is a hybrid of the net and gross leases. The property expenses are shared between the landlord and the tenant. So, a tenant pays the base rent, as well as a portion of the expenses.
Percentage Lease: in this arrangement, the tenant pays the base rent in addition to a percentage of their gross income. This happens in malls and shopping centers often.
If the space you find requires a lot of work, you may negotiate with the landlord for a tenant improvement allowance. Note, however, that you will enjoy this concession only if the commercial property has a lot of unoccupied space.
Before you sign the lease, confirm that the property meets the requirements of the Americans with Disabilities Act. In this act, the landlord and the tenant are responsible for making the space accessible to persons with disabilities. So, if the space is not compliant, ensure that the lease has a clause that names the party responsible for the space’s improvement.
Breach of lease
If the tenant breaches the lease, the landlord may recover some damages from the tenant’s material breach.
Note that is the landlord waives the tenant’s breach, the landlord cannot demand strict compliance with the tenant later. For a waiver, there should be an existing right, advantage, or benefit; knowledge of the existence of the right; and the intention to relinquish the right/ benefit/ advantage.
Subleases and assignment
Because of the unpredictable nature of the business, the fact that you may have to sell your business or move it to a bigger space, you need to check if the business lease agreement has a provision for subleases and if you can assign the lease to a third party.
Duty to Mitigate
Know that all commercial leases have the provision that gives landlords the duty to mitigate. What this means is that if a tenant vacates the premises wrongfully and defaults on the payment, the landlord must make all reasonable efforts and also to exercise due diligence to reduce damages resulting from the breach. They nay do this by re-letting that premise to a new tenant.
Wondering what else you should review? Well, check the security deposit provisions, relocation and termination rights, parking, signage, and the presence or absence of an exclusivity clause.
If you are looking for a commercial lease in Ogden, Salt Lake City, Provo, St. George, Moab, Logan, Park City or any other city in Utah, you may want to get our free commercial lease agreement form today.