I ABSOLUTELY LOVE new businesses coming into town. Who doesn’t love a new Thai restaurant opening up around the corner, a taco stand or a full fat ice cream place? But, unfortunately according to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months.
You’ll never know unless you try, but if you try you may end up putting yourself in financial risk that will take a minute to get out of, and it may affect your family’s livelihood in profound ways (like you may have to declare bankruptcy – I’ve unfortunately seen this consequence first hand through a family friend who had a having a thriving business that grew faster than the demand).
You should not let failure stop you, but you have to be mindful of it and protect yourself from its consequences. As an attorney who represents developers, I see entrepreneurship first hand, and I also know that many first time business owners leasing spaces DO NOT USE ATTORNEYS.
I totally understand. Not going to judge you. Although, I would LOVE having my own client base, I LOVE seeing fairness in a deal. I also hate one-sided deals, it makes me feel uncomfortable and it doesn’t settle well with my conscience.
I know when you are entering into a deal everyone is nice, but just remember, when a deal goes south, people are not so kind. So, below is a list of quick things you can do to protect yourself from getting screwed if you decide NOT to use an attorney:
- INITIAL TERM AND OPTIONS FOR ADDITIONAL TERMS. Keep your initial term somewhat short, like 5 years, then have options to extend that can ONLY be exercised by YOU (the tenant) prior to the initial 5 year term expiring (i.e. three 5 year options to extend). This is important, because often when a term expires a landlord tries to use this as leverage to increase rates that DO NOT REFLECT market rates, because they know you are invested in the location, you have have spent money improving the space, and you are most likely just going to have to agree to it. (PUT THIS POINT IN YOUR LETTER OF INTENT)
- LIMIT THE PERSONAL GUARANTY. So you’re smart enough to make sure you’re leasing the space with an LLC, but then you are dumb enough to sign YOUR OWN NAME for the “guaranty” for the full lease term. Limit that SH*T. Seriously. Get creative. Maybe you have a personal guaranty that lasts for half of the term or limited to 6 months rent, or after 3 years the guaranty disappears. JUST GET CREATIVE – Google the creativity my friends.
- COMMON AREA MAINTENANCE CHARGES. Who is paying for what? YOU SHOULD NEVER BE PAYING FOR LANDLORD’S CAPITAL IMPROVEMENTS, or paying for things that the landlord will be reimbursed for at a later date. It makes sense to pay for your portion of property taxes, electricity, heating, etc., but it doesn’t make sense for you to be paying for repairs to your roof, or a brand new HVAC system six months before your term ends.
- DEFAULT. MAKE SURE YOU HAVE A CURE RIGHT. If you’re late on a payment, or accidentally use the sidewalk to set up a table with some sample items, you do not want to trigger an automatic default. What you do want it to trigger, is the right of the Landlord to notify you of such issue, and the ability to cure a monetary default within 10 days of receiving notice and all non monetary defaults cured within 30 days of receiving notice. An automatic default means the Landlord can terminate your lease, and you could, in some instances, be liable for the total rent due for the remaining term.
- LANDLORD DEFAULT. What happens if you contact your Landlord about your broken HVAC system – and he does NOTHING? Well in this instance you want the ability to cure the problem if landlord fails to address the problem within 15 days, and you want the right to deduct such cost from you rent with proof of payment. Go over this concept with your landlord, I’m sure their attorney will be happy to assist incorporating such concept in your lease.
- NOTICES. THIS SEEMS LIKE A DUMB POINT, but man, the way notices need to be sent is an important thing. Is sending it by regular mail OKAY? or do you need to send it priority overnight via national known carrier, like FEDEX or UPS? You would hate to be that person who emailed your landlord your election of extending the term, but your landlord using the notice provision against you, in order to “negate” your extension, since you failed to follow the notice provision in your lease (THIS HAPPENS IN REAL LIFE PEOPLE).
- INSURANCE AMOUNTS. Most landlord’s are flexible with these amounts – talk to your carrier and discuss the minimum amounts that need to be carried with the landlord.
- CONFIRM ALL NUMBERS. Run all $$$ yourself. Just do it. Anyone can make a mistake.
I obviously have a whole list of other changes I could recommend, but these are the KEY POINTS to focus on when you’re entering into a lease and beginning (hopefully) a long term relationship with your landlord.
Maheen Akhter, ESQ.
GA & MO barred.
The above is not intended to be legal advice – but merely things for you to consider and share with those around you entering into a lease.