Your business needs a new space, and you’ve found the perfect location. Before you sign on the dotted line, be sure to read your current lease carefully. You may have obligations to fulfill before you can move out of your space and into a new one.
You should always review your old lease prior to entering a new commercial lease agreement. What provisions, or clauses, are in the lease? What do you have to do to move out? Can your landlord show the property in the meantime? Your lease agreement should provide answers to how you and your landlord will move forward.
Once you know what to look for in a lease, you will be better prepared to negotiate for provisions that are important to you in the future. Here are four clauses you’ll want to look for in your lease agreement.
1. Restoration Provisions
You and your landlord are obligated to maintain the rented property as outlined in your lease agreement. Some leases provide room for tenant improvements, which means the tenant can change the space. With your landlord’s permission, you can alter your rental space to meet the needs of your business. Tenant improvements can be anything from adding or removing a wall to changing the lighting.
If you make improvements to a property, you may have to unmake them when you move out. A restoration clause will state if you need to remove any alterations you made to the property before you leave it. Restoring the space could be costly. You will likely have to pay for the removal of the improvements and restoration of the space.
Your landlord may want to keep the improvements you made to the property, especially if they would attract another tenant. Whether your landlord plans to lease the space again or demolish it, your agreement will detail what you are responsible for before you leave.
2. Holdover Provisions
When your lease expires, you may be able to continue using the property temporarily without being evicted. A holdover provision in your lease may allow you to stay on the premises after your lease ends. Often a holdover provision enables the tenant to remain on a month by month basis until a renewal agreement is reached or the tenant moves. During this period, the tenant must continue to pay rent.
Landlords may tailor this clause to increase the rent during holdover. Higher rent may persuade unwanted tenants to leave. Without a holdover provision, the lease is no longer valid and the tenant will be considered a trespasser. You may be evicted if you stay beyond your lease agreement and do not communicate with your landlord.
You may have to pay damages to your landlord if you remain after the lease’s expiration. These damages can measure from one and a half to twice the amount of your current rent. Remember to read over your lease carefully. If you are negotiating a new lease agreement, a holdover clause may be something you want for your business.
3. Extension Options
You may love your current location, and the thought of leaving it may seem unthinkable. Luckily, your lease agreement may include options for extending your lease. You will want to look for “Option to Extend” or “Right to Renew” clauses. These clauses will tell you if you can renew the lease and under what terms. Most extension terms are at fair market value, which how much the property would cost on the open market.
An extension clause will give you a notice period in which you must tell your landlord that you want to renew your agreement. Extension clauses can keep your landlord from leasing the space to another tenant for a period of time. After the notice period ends, your landlord will be able to lease to another tenant.
Other clauses may affect the duration of your tenancy, such as:
- Automatic lease renewal. With an automatic lease renewal, your lease will renew based on the previous rental terms. Your landlord should notify you of your renewal in advance, so you have time to tell your landlord if you do not want to renew the lease.
- Buy-out clause. A buy-out clause allows either the tenant or the landlord to break the lease agreement at any time. Both parties must give at least a 60-day notice to the other, and they may have to pay a penalty fee.
4. Landlord’s Right To Show Your Space
A landlord has the right to enter your space in case of an emergency or maintenance issue. Your lease may state that your landlord can only enter for other reasons on specific days and times. If your business plans to relocate, your landlord has the right to show the property to potential tenants.
A landlord will show the space as your lease’s expiration date approaches. Some landlords will begin to show the property six months to a year before your lease ends. Your landlord should give you notice before showing the property, so you can minimize disruptions to your business. Your lease will state how far in advance your landlord must tell you about showing the property. Some provisions require the landlord to notify you within 24 or 48 hours.
Your Lease Agreement
You may have found a new location, or you may want to renew your current lease. Whatever the case, you should discuss these provisions with your landlord to reach an agreement that suits your needs. You may want to talk over the lease with your agent or lawyer to make sure you fully understand your obligations before you sign it.
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