2 clauses that reduce your risk with a commercial lease

On Behalf of | Jun 4, 2018 | Business Contracts and Leases

You’re considering a commercial lease. You do not want to invest in purchasing a property up front, and the lease gives you a low-risk way to get your business off the ground.

Even so, you’re worried about what the lease means if things do not pan out. What if you sign a five-year lease and then low sales make it so you can’t afford the space two years from now? Are you still on the hook for payments for the next three years for a commercial space you do not want?

There are two potential clauses you may want to consider, which can give you an out:

A co-tenancy clause

This clause works best in commercial areas — like a strip mall — where one major tenant draws a lot of foot traffic to the area. It could be a popular grocery store, for instance. You picked that space because you knew that “anchor tenant” would bring in potential customers. If that tenant leaves, this clause allows you to then break your lease because the space is no longer as valuable as it was when you signed.

A bailout clause

The bailout clause is simply tied to sales. For instance, perhaps you need to earn $10,000 per month to pay your bills and your staff. The clause may dictate that you can leave the space if your sales drop below that $10,000 level. It may be that the commercial property just is not as perfect for your business as the owner implied, and you need to move and get a fresh start.

Make sure you carefully go over any lease before signing. It’s very important that you understand the options it gives you.

Source: The Self Employed, “How To Get Out Of A Commercial Lease,” accessed May 11, 2018