The three categories of stuff in your lease 🖇️

Did you ever have one of those nifty decoder rings as a kid? A simple gadget that hovered over seemingly incomprehensible text or symbols would reveal its true meaning. ✨Magical✨ Don't you wish you had one of those for your leases (and to decode that look on your spouse's face when you put on the orange sweatpants…again)?

Anyway, sweatpants aside, I think we’ve cracked the case on the leases!

It's hard to sit down with an 65 page lease and read ALL of it. We hear it all the time, “An Act of God forcing me to close my business? That’ll never happen to me!” Umm, remember 2020? Still, you’re not entirely wrong. There are a lot of crazy sounding things in a lease that’ll likely never come to fruition but still deserve attention.

So we’ve taken to thinking about leases as having three buckets of probability. Understanding that you’ll want to weigh in on all the terms, but pick your battles wisely, the bucket approach helps to categorize and prioritize. Here’s a general guide:

1. Definitely will happen and will affect you

Rent: We all know this one is a biggie. The rent you and your broker negotiate will have a huge impact on your bottom line and livelihood of your business. Like we said last week, “asking rents aren’t price tags,” and you are absolutely expected to negotiate.

Term: It’s hard to look into the future and know what it holds, but when it comes to signing a lease, expect to think about the next five to ten years. You may have some (or more) gray hair by then, you may have children who weren’t yet born when you signed your lease, or you may be crushing it and eager to sign a renewal for another five years. This sort of future gazing gives you more options than only focusing on the immediate.

Use: Since we’re gazing into that crystal ball and divining the future, let’s talk about your use clause. The takeaway here: keep it broad enough to allow your concept to evolve but specific enough to allow you to stake claim to a concept ex: coffee, pizza, yoga, etc. so no one else can come in and offer those services (more on that later).

2. Certainly may happen, but aren’t usually top of mind

Renewals: When you’re negotiating a lease, it’s hard to know if you’ll exercise your option for another five or ten years. But, you’d better believe that having a renewal option in your lease is imperative. Why? Well, if you want to keep your business going, it gives you the protection and freedom to stay put. It also adds value if you ever were to sell your business.

Assignments: Most of us don't think about the assignment or sublet clauses when we're first reviewing a lease. But just like option periods to extend your lease, the assignment clause gives you the right to assign (transfer) your lease to someone else. This is key if you ever want to sell your business (trust us, it’s more common than you think).

Repairs & Maintenance: I’m not sure how else to say it, but “$hit happens,” y’all. You come into your shop one day and it’s 87 degrees. The HVAC unit is shot. But whose responsibility is it?! Grab that decoder ring of yours and consult the lease because it will clearly outline who does what. Oops! Hopefully you aren’t seeing for the first time that you needed to have an HVAC service contract in place for the landlord to honor the replacement you carefully negotiated into your lease.

Exclusives: We talked about your use clause, but how do neighboring tenants' concepts affect you? When reviewing your lease, pay attention to the exclusives. If you’ve got your heart set on adding espresso to your feminist bookstore after your first year, make sure you’re not stepping on the toes of another business who’s got the lock on the jitter juice.

3. Likely or (hopefully) won’t happen, but might, and would definitely suck
Ok, now we’re talking about the real “that’ll never happen to ME” kinda stuff and this time, you’re probably right. However, that doesn’t mean you shouldn’t CYA.
 

Condemnation: Let’s hope this doesn’t happen! On the off chance that all or a portion of the property you occupy is condemned (say, by a local authority that’s deemed the space unsafe), then you have legal recourse for rent abatement or termination of the lease.

Default: Have you guys ever read a default clause? They can be surprisingly long and they cover A LOT more than “y'all didn’t pay the rent.” And they go both ways: both landlords and tenants can violate a lease…phew! Don’t skimp on reading this. I’m sure you’d never do anything like turn your pilates studio into an “adult entertainment” venue and trigger a default but, hey, crazier things have happened.

Force majeure: Force majeure is an exotic sounding French word that translates into: superior force, or a force beyond our (landlord’s or tenant’s) control. In the years following the 2020 global pandemic, more people consulted this clause in this lease than ever before.

When you break it down this way, you have a simpler framework to evaluate your lease with your lawyer. This approach can be useful whether you’re negotiating and trying to pick your battles or reviewing your lease before you sign.