As a broker, being able to read between the lines of a deal is imperative. Whether you’re reviewing a lease or writing one up for a client, a talented broker brings their all to vet the document…word-for-word.
Success comes from being able to sniff out a troubling clause in a contract before signing—mitigating the risks of legal trouble, financial losses, and big headaches down the line.
This is an especially important lesson for entrepreneurs and start-ups who are just dipping their toes into the CRE office sector. Thankfully, these lessons don’t have to be learned the hard way. By applying a few pieces of expert advice, you should be able to navigate office leases like a pro.
Commercial Tenant Harassment
Not all office properties make a good home for your business. You’ve most likely heard horror-stories of awful landlord-tenant relationships where building problems keep cropping up, interrupting commercial business.
To protect against these potential business-disrupting issues, basic functional problems one after another are considered harassment. Commercial tenant harassment clauses equate these situations to a contract breach resulting in a pay-out to the tenant, making them a must for office leases.
Shifts in Asset Ownership
If the property owner sells the building you’re occupying, what happens next? Shifts in asset ownership happen all the time, and being caught off guard by an outside transaction may put your business back on the market for a new property.
Avoid this by looking for details regarding what happens if the owner sells the property while you’re occupying it. The lease terms should remain unaffected by a change of asset ownership.
Strict Personal Guarantees
Confidence, self-doubt, resilience, and the inability to take “no” for an answer are all pivotal traits of industry-shakers. But—if not backed up by a strong foundation of security—they can also be an entrepreneur’s Achilles heel.
When you’re just diving into the CRE office industry, it’s unlikely that your mind is focused on the worst-case scenario. But this possibility needs to be on your mind, even at the time of signing.
If you want to protect yourself in case the investment takes a turn for the worst, make sure that the lease’s personal guarantee is accompanied by a “good guy clause.” Essentially, this states that if you’re experiencing financial troubles and need to fall out of the lease, you can do so without incurring penalties.
Don’t Let the Lease Lapse
This is just an extra tip to keep in mind once you’re already well into your lease. Mark the lease termination date on your calendar to avoid being charged continual rent without resigning. In CRE, it’s all too common for leases to lapse, unnoticed by the tenant.
Since the lease is the official point of safety, protection, and guidelines for the interactions and responsibilities between tenants and landlords, this document needs to be in place while you’re occupying any commercial property. Otherwise, you’ll be navigating without a parachute.
Be sure to keep your eyes out for these red flags hiding within that office lease. Err on the side of caution and get the upper hand to keep yourself, your clients, and your business protected.