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Commercial Lease vs Buying

As all small business owners in Washington and nationwide know, it is important to have suitable work space from which to operate their businesses. In general, when it comes to commercial properties, owners have a choice between buying and leasing the property. Although buying gives the owner much more flexibility regarding his use of the property, it is typically significantly more expensive than leasing. As a result, many owners choose leasing. However, a commercial lease is not like a residential lease, so owners have many factors to consider before they enter into the lease.

How are commercial leases different?

Commercial leases differ from residential leases because they have fewer legal protections. Protections against dishonest landlord practices that consumer protection laws provide simply do not exist for commercial leases, as lawmakers assume that business owners are more sophisticated than the average residential lessee.

Another difference is that the terms of commercial leases vary more than residential leases. In residential leases, each lease has more or less the same terms and conditions, as all residents are treated equally. However, the terms in a commercial lease are tailored more to the needs of the business tenant. This means that many of their terms are negotiable.

Important components of a commercial lease

Since the terms of a commercial lease are largely negotiable, it is important for the business owner to be wary when entering into a lease, as mistakes can be costly for the business. Some provisions that a business owner should consider are:

  • Length of lease: Most commercial leases have a longer term than residential leases and are harder to break. Although higher rent may be charged, it may be worth considering signing a shorter lease with an option to renew.
  • Exclusivity clause: This clause protects your business by preventing the landlord from renting space to a competitor.
  • Repairs: Landlords may try to force you to pay for repairs to areas that are not within your commercial space (e.g. air conditioner or sprinkler systems). It is a good idea to ensure that you are only responsible for repairs that are within your space.
  • Use clause: This clause restricts what activities that the tenant may engage in while on the property. If there are future business expansion plans, it is important to ensure that the clause is worded as broadly as possible.
  • Property modifications: Landlords will often try to pass on the costs of necessary modifications to the property, such as to comply with the Americans With Disabilities Act, onto the tenants.
  • Assignment and Subletting: It is worth negotiating such a provision in case that your business fails or wants to relocate, as commercial leases are difficult to break.

Consult an attorney

If you are considering entering into a commercial lease, consulting an experienced real estate attorney can be well worth it. In addition to ensuring that you avoid the pitfalls that commercial leases can contain, an attorney can ensure that the lease reflects and protects your business' interests.