Even if you are predicting nothing but sunny skies and steady growth for your business in the coming years, sometimes factors outside of your control can unexpectedly affect your business. Because leases are a sizable investment of your time and money, signing a lease always carries a risk in the event that you might have to end it early because of bankruptcy, being bought out, or forced to relocate for some other reason—a worst case lease breaking scenario.
On the other hand, a lease could begin to hurt your business because of the unforeseen success and growth you are experiencing. A best case lease breaking scenario would be needing to move because your business has outgrown the space.
Here are some tips for putting your business in the best possible position in the event of having to break your lease for any reason, as explained in the article “How to prepare your business for the best and worst cases in a lease”:
- Subletting or Assignment Clauses. Try to negotiate for the right to either sublet some or all of your space to another tenant, or assign the lease altogether to a different party. This can majorly alleviate the financial troubles you might run into by ending a lease—for instance, if your business needs to relocate to a different space.
- Personal Guarantees. Pay particular attention to this part of a lease, because it is not favorable to you as a tenant, though you can often negotiate to get it to a more reasonable point. A personal guarantee makes you as a business owner personally responsible for lease payments in the event that your business breaks the lease. For instance, if you have a five year lease and you break it after two years, you will have to pay the last three years of rent from your personal savings. Read the fine print on your personal guarantee to find out what you are responsible for. Landlords typically ask for a guarantee if they are making a lot of adjustments to a space for your business, so see if you can only be held responsible for improvements that specifically will be used by your business, or ask if the amount you might have to pay could decrease as you get closer to the end date of the lease.
- Disability or Death Clause. This clause calls for the termination of a lease if the business owner becomes disabled or dies. This might be important if you are a very small business, such as a law firm with just one lawyer and a receptionist.
- First Refusal Rights. This clause means that a landlord has to offer spaces adjacent to your offices to you first before seeking other tenants. This could be good for your business if you need to expand because you will save time and money that would be spent on moving. However, there is usually a small window of time for you to take advantage of these offers, and often you have to either match or exceed another customer’s offer for the space, so don’t let yourself be pressured into adding the space if the terms do not meet your needs.
- Relocation or Expansion Clause. Putting this clause in your lease means that you can potentially move into another space the landlord has available in the event that you grow and need a larger space. The specifics of this clause differ from lease to lease, but be aware of the basics and ready to negotiate for this perk.
Unforseen boons and setbacks happen to businesses all of the time, and the best way to prepare yourself is by anticipating every possible scenario while negotiating your lease!