Since signing a lease is such a huge financial commitment for your business, you need to be well aware of when not to lease. Be sure that you understand all of the terms of your lease, and if you are having difficulty with some of the legal wording, it might be worth having a lawyer review the lease before you sign. Here are a few “red flags”—bad lease terms—to on the lookout for as you consider your lease:
- A Lease that is Longer than Two Years – Small business owners do not want to find themselves stuck in a long term-lease, because if you find yourself having to end the lease for any reason, you will be forced to keep paying rent anyway until the landlord finds a new tenant for the space. In this situation, a landlord does not have a lot of incentive to rush to find a new tenant because you are financially committed. In a rough economy, landlords will try hard to get you to sign a 3-5 year lease, but try to avoid this. Your best option is a one-year lease with a renewal clause; you might have to compromise and sign for two years—but do not agree to longer than that. The longer your lease commitment, the more limited your business is if it outgrows a space or needs to move for any reason.
- Forfeiting Your Legal Rights – Sometimes a lease agreement can force or trick you into handing over certain rights that may or may not be enforceable. But do not take chances with this, and in particular do not sign over your right to take legal action against your landlord if necessary.
Check back for more red flags to look out for as you are reviewing final drafts of your lease!