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Small business owners need an advocate when negotiating a lease

By Senen Garcia

PicMany small businesses begin to reach a point where the business needs to move out of the owner’s home and into a separate facility.  However, with the pursuit of a location and its eventual discovery comes the dreaded commercial lease.  This document is a serious document and should be given great deal of consideration and attention.  But, how can what is written in the affect your business?

Real estate attorneys are sometimes retained to review legal matters to ascertain compliance with local and state laws, but unfortunately, they are not asked to review the business terms. It is not merely the rental rate that determines the costs relating to leasing. How can a tenant be certain that the small print in the lease will not negatively impact the profits?

SCORE Miami-Dade provides counseling to thousands of small business owners. SCORE counselors see many situations in which tenants, in the heat of the moment and the excitement of starting off a new business or relocating to a new location, do not take the time, nor seek professional advice when reviewing the terms of a commercial lease.

The leases are usually 50 pages or more, with fine print, and terms that have future impact on the cash flow of the business. Often the owners request mentoring after they have executed a long-term lease.  As a result, many small businesses end up working for the landlord because they did not review the clauses that relate to increases in tenant costs throughout the term of the lease. Any default affects personal credit scores and the ability to borrow funds at favorable rates now and in the future.

Leases are written by landlords to protect the landlord’s interest: not the interests of the tenant. SCORE, through educational workshops and one-on-one counseling, seeks to educate the small business owner in order to avoid the pitfalls that can occur when all the terms and conditions in a lease are not reviewed and analyzed. Some of the clauses in a commercial lease that should be examined with care are:

* Rent per square foot (p.s.f.): Is it in line with the current market rents – for comparable properties in the local area?

* Is the net rentable square footage accurate? (n.r.s.f. is not the same as the usable s.f.) What is the loss factor in the building?

* What is included in CAM and how is it calculated? (Common Area Maintenance)

* Base year for pass thru of operating expenses (CAM). Is it based on full occupancy or partial occupancy?

* Is marketing and management a part of the CAM that is passed on to the tenant?

* What building services are provided by subsidiaries of landlord?

* Base year for pass thru of real estate taxes -– Has the building been reassessed following improvements? Any increases should be applied to a full, recent assessed value.

* Who pays for structural repairs to the building?

* Who insures the structure of the building against storm damage?

* What happens to the tenant lease if there is storm damage?

* In case of dispute, who pays the legal expenses?

* Are there any charges for use of the premises in the evening or on weekends?

* Is the parking provided to the tenants owned or is it leased? If the parking is on leased property, what is the term of the leased?

Business owners should take the time to have a professional advocate review a lease. The owner needs a professional, an attorney, and/or an accountant who can evaluate the current and future costs that may be incurred because of terms and conditions in the lease. SCORE, with its active chapters in Miami Dade, Broward and Palm Beach counties, has qualified professionals who can counsel owners to make them aware of the leasing pitfalls.. See http://miamidade.score.org or http://www.score.org.

Miami attorney Senen Garcia founded SG Law Group with a background as an entrepreneur prior to becoming a lawyer. He is a frequent speaker on seeking financing for a business, budgeting, tax planning and importance of capital accounts and has been quoted on Yahoo! Finance and MSN Business. He is vice chair of the SCORE Miami-Dade chapter.

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