PIMP MY LEASE WHY EVERY COMMERCIAL TENANT NEEDS A PROFESSIONAL LEASE DOCUMENT REVIEW
CO-WINTER 2010Author :
Dale Willerton 
Dale Willerton is The Lease Coach - a Lease Consultant who works exclusively for tenants. Dale is a professional speaker and author of Negotiate Your Commercial, Retail & Office Lease or Renewal.
Need help with your new lease or renewal?
Call Dale at 1-800-738-9202,
e-mail DaleWillerton@TheLeaseCoach.com
or visit www.TheLeaseCoach.com and/or www.HelpULeaseCommercial.com.
When I am speaking at business conventions about negotiating commercial leases for tenants, I have an opportunity to do casual audience surveys. One of the questions I ask is which tenants had their commercial lease document professionally reviewed before they signed it. Over 50% of all business-owners openly acknowledge they did so without assistance.
That figure never ceases to shock me. Committing to a Formal Lease Document is an obligation and costly in regards to both a business-owner’s time and money. By blindly signing this document, tenants may be headed for financial disaster. However, many entrepreneurs do not know or understand this and I frequently hear many of the same reasons why business-owners did not request a professional lease document review:
a) Didn’t know anyone who they could call
b) No budget to pay for a lease document review
c) Didn’t think it was important
d) Didn’t think any part of the lease document was negotiable anyway, so why bother
e) Trusted the landlord (he was so nice)
f) Considered calling a lawyer but didn’t get around to it
Consider the following scenarios. A chiropractor came to The Lease Coach for help a few weeks ago. He had negotiated his own lease and delegated the document review to a local lawyer who was not real estate savvy. Unfortunately, many clauses that should have been modified or negotiated were not and now the tenant needed it corrected. Another tenant gave her lease document to an attorney who proceeded to modify the entire lease document (at no small cost) without speaking with the tenant or even explaining why changes were made or necessary.
A franchise tenant came to us for a lease document review and we proceeded to do a 30-Point Lease Inspection (almost the way a mechanic would use a checklist to examine a used car you were going to buy from a stranger.) Following the inspection, we provided a thorough written summary report. Then we scheduled a one-two hour telephone consultation with the tenant to do the following:
1. To explain why certain leases were bad for the tenant, and which ones were most important to negotiate on.
2. To explain what step down clauses (defined as anything less that is stipulated in the lease) the tenant was likely to achieve and exactly how to negotiate with the landlord on certain points.
3. To suggest new clauses that needed to be added to the lease document so that the tenant was unaware of. As an example, tenants can agree to be possibly relocated within the property, if necessary, and The Lease Coach ensures that the landlord pays for such a move.
4. To review any other questions the tenant might have and to define unclear lease document clauses.
Unbeknownst to many tenants, the entire lease agreement is potentially negotiable. The landlord has loaded the lease document with one-sided clauses in his/her favour. Tenants need not be fearful of negotiating with a landlord, but only fear their own ignorance and inexperience.
By signing a Lease Document, a commercial tenant is agreeing to pay hundreds of thousands of dollars in rent and cannot take this process lightly. Even if you survive the tenancy and the lease document does not come back to haunt you, when it comes time to sell your business (and assign your lease agreement) the buyer may scrutinize the document closely.
Here are two more points for your consideration … if you want to sell your business, the landlord can opt to reclaim the space back instead of allowing the sale and assignment. Should this occur, you may lose hundreds of thousands of dollars.
If you want to expand on your Use clause (for example, if a hair stylist wants to add a tanning bed for clients) or if a competitor moves into the building because you did not think to negotiate for Exclusivity, your business could become worthless.
Rarely have I been accused of being a fear monger except when it comes to a lease document review. I have simply seen too many tenants lose their shirts and waste five or 10 years building a business only to be side-swiped by fine print in the Formal Lease Document that could easily have been negotiated and modified in advance.
Obviously, I am stressing that a business-owner about to open a business and enter to a lease agreement to have the paperwork reviewed first. However, I am also stating that if you are planning to buy or sell a business that involves a lease assignment you must get some help as well. Commercial tenants are not supposed to be real estate savvy. Don’t fight it, face it head on and talk to an expert.
That figure never ceases to shock me. Committing to a Formal Lease Document is an obligation and costly in regards to both a business-owner’s time and money. By blindly signing this document, tenants may be headed for financial disaster. However, many entrepreneurs do not know or understand this and I frequently hear many of the same reasons why business-owners did not request a professional lease document review:
a) Didn’t know anyone who they could call
b) No budget to pay for a lease document review
c) Didn’t think it was important
d) Didn’t think any part of the lease document was negotiable anyway, so why bother
e) Trusted the landlord (he was so nice)
f) Considered calling a lawyer but didn’t get around to it
Consider the following scenarios. A chiropractor came to The Lease Coach for help a few weeks ago. He had negotiated his own lease and delegated the document review to a local lawyer who was not real estate savvy. Unfortunately, many clauses that should have been modified or negotiated were not and now the tenant needed it corrected. Another tenant gave her lease document to an attorney who proceeded to modify the entire lease document (at no small cost) without speaking with the tenant or even explaining why changes were made or necessary.
A franchise tenant came to us for a lease document review and we proceeded to do a 30-Point Lease Inspection (almost the way a mechanic would use a checklist to examine a used car you were going to buy from a stranger.) Following the inspection, we provided a thorough written summary report. Then we scheduled a one-two hour telephone consultation with the tenant to do the following:
1. To explain why certain leases were bad for the tenant, and which ones were most important to negotiate on.
2. To explain what step down clauses (defined as anything less that is stipulated in the lease) the tenant was likely to achieve and exactly how to negotiate with the landlord on certain points.
3. To suggest new clauses that needed to be added to the lease document so that the tenant was unaware of. As an example, tenants can agree to be possibly relocated within the property, if necessary, and The Lease Coach ensures that the landlord pays for such a move.
4. To review any other questions the tenant might have and to define unclear lease document clauses.
Unbeknownst to many tenants, the entire lease agreement is potentially negotiable. The landlord has loaded the lease document with one-sided clauses in his/her favour. Tenants need not be fearful of negotiating with a landlord, but only fear their own ignorance and inexperience.
By signing a Lease Document, a commercial tenant is agreeing to pay hundreds of thousands of dollars in rent and cannot take this process lightly. Even if you survive the tenancy and the lease document does not come back to haunt you, when it comes time to sell your business (and assign your lease agreement) the buyer may scrutinize the document closely.
Here are two more points for your consideration … if you want to sell your business, the landlord can opt to reclaim the space back instead of allowing the sale and assignment. Should this occur, you may lose hundreds of thousands of dollars.
If you want to expand on your Use clause (for example, if a hair stylist wants to add a tanning bed for clients) or if a competitor moves into the building because you did not think to negotiate for Exclusivity, your business could become worthless.
Rarely have I been accused of being a fear monger except when it comes to a lease document review. I have simply seen too many tenants lose their shirts and waste five or 10 years building a business only to be side-swiped by fine print in the Formal Lease Document that could easily have been negotiated and modified in advance.
Obviously, I am stressing that a business-owner about to open a business and enter to a lease agreement to have the paperwork reviewed first. However, I am also stating that if you are planning to buy or sell a business that involves a lease assignment you must get some help as well. Commercial tenants are not supposed to be real estate savvy. Don’t fight it, face it head on and talk to an expert.