Tenancy agreements (TA) are prepared by the landlord and when signed by the tenant, are legally binding. So, a prospective tenant must read the agreement in detail and make hard choices as to what is ultimately acceptable from a business perspective.
Blindly signing a tenancy agreement without negotiating terms is the ultimate dream of any landlord. However, the reality is that terms can be negotiated. The agreement, in its first form, is the ultimate landlord wish list.
If things go well, many of these terms are often non-issues. However, as the old adage goes, “Plan for the worst, wish for the best.” Therefore, it’s the responsibility of entrepreneurs to read through these agreements in detail and ensure they understand all the belts and straps that they are committing to.
Here are the top five things you should look out for in any commercial lease agreement:
The big one is the landlord’s right to kick you out with three months notice if they decide to play around with the mall configuration. This may seem like a non-negotiable clause, but it isn’t. You can negotiate for the landlord not to invoke this clause during the first term.
Personal guarantees are slowly making their way out of lease agreements. Do not agree to this clause as it can be disastrous in a downside scenario. Instead, offer an extra month security deposit. Always limit your liability in any agreement - never write a blank check.
Performance guarantees of any sort should never be on the table. It’s as much the landlord’s responsibility to drive traffic as it is you so don’t take all the responsibility onto your shoulders.
Repairs and maintenance costs have no market standard so understand exactly where your responsibility lies and that of the landlords if a pipe suddenly bursts on your premises. Customer injuries can be in play and this is no time for confusion.
Most lease agreements have renewal terms that are subject to mutual agreement. Never assume this is a sure thing. You may not be able to renew and after the first term be saddled with an unexpected reinstatement expense. Ensure you provision for this upfront and prepare in advance in case things don’t work out in your favour. Also ensure you run your return on investment analysis and manage your cash flow properly for all possible outcomes.
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