It is important for owners to understand their leases. The status of your lease could be of paramount importance if your business is location-sensitive. Businesses such as restaurants and retail are usually location-dependent and need to pay special attention to their leases. Every business should understand in detail the terms of its leases.

Here are some key factors involving leases that owners should not ignore or overlook.

  1. The longer your lease the better.
  2. If the property becomes available, it is often in an owner’s best interest to try and buy the property so you are not forced to move.
  3. When negotiating, it is best to negotiate a way out of the lease. This is particularly important for new businesses where the fate of your business is still an unknown. Experts recommend choosing a one-year lease with a long option period.
  4. You may want to sell your business at some point. Therefore, it is important to know if your lease is transferable and what the requirements are for the transfer.
  5. When signing a lease, look at the big picture. For example: if your business location is in a shopping center. Attempt to have written into your lease that you’re the only tenant that can engage in your type of business.
  6. If your business location is in a shopping center, try to outline in your agreement a reduction of your rent if an anchor store closes.
  7. Your lease should detail what your responsibilities are and what responsibilities your landlords hold. Keep in mind that if you are a new business, it is quite possible that your landlord will likely require a personal guarantee from you, the owner.
  8. The most important factor in determining the quality of your lease is the dollar amount. Carefully assess every aspect of the lease and understand all of its terms.

There are other issues that should be taken into consideration when considering a lease. For example:

  • Who will pay to rebuild in the event of a natural disaster or fire?
  • Is there a percentage clause? Is that percentage clause reasonable?
  • How are real estate taxes, grounds-keeping fees and maintenance fees handled?

Leases play an important role in the buying and selling of businesses. It is important for owners to understand their leases. Investing the time to understand every aspect of your lease will save you headaches in the long run. It will also help to preserve the integrity of your business.

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AUTHOR: EBIT Associates, Ltd.
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