Leasing commercial property in Michigan is an important component of any small business' success. In the lease agreement, there are restrictions, obligations, and rights regarding the use and maintenance of the property. Making sure the terms and conditions favor you is critical. You need to make sure you enter into the right type of lease agreement and that your interests and rights are properly addressed and protected.
At Law Office of Cery R. Kennedy, from finding the right property to negotiating the lease agreement and to finalizing it, I will be at your side, providing critical insight and legal representation.
Types of Commercial Leases for Small Businesses in Michigan
A commercial lease is a contract that is entered into by a commercial tenant (“lessor”) and a landlord (“lessee”), who is often the owner of the property. The lease outlines the duties and expectations of each party and states a date through which the lease is effective.
There are different types of commercial small business leases. The following are some of the most common.
Net leases take a myriad of different forms, but the basic premise is that the lessor pays a certain amount in rent and is also responsible for paying for all utilities, insurance, and maintenance. These leases are generally less expensive than full-service leases, but the amount can vary month to month and is not fixed like the rent in a full-service lease.
In a full-service lease, the lessor pays a certain amount of rent, and the landlord has the responsibility of paying all expenses of the property, including repairs, maintenance, taxes, insurance, and utilities.
In a percentage lease, the lessor and the lessee work together to ensure the business is profitable, as the rent consists of a base amount plus a percentage of the gross income of the business. This means the lessor has a direct interest in making certain the lessee receives the assistance they need to be successful.
Three Things Small Businesses Should Consider Before Leasing Commercial Property in Michigan
- Suited to Needs. Before renting a space for your business, you need to make sure the space you are renting is suited for your needs. Does it offer adequate parking? Is there enough storage?
- Who Makes Improvements. It is important to be clear who is responsible when improvements, such as painting, need to be completed.
- Insurance Coverage. Even if the lessee carries insurance, you will need to carry your own as well. Finding an insurance agent knowledgeable in this area will help you make sure you and your small business are protected against liability and other lease-related issues.
There are other matters to consider, including what happens if either party needs to break the lease. As your small business attorney in Michigan, we will advise you accordingly on all these things as we draft, review, and negotiate commercial property leases on your behalf. We may also provide suggestions for insurance companies that provide great benefits for you and your small business.
Three Things Landlords Should Consider Before Leasing Commercial Property to Small Businesses in Michigan
If you are considering renting out space for a small business, there are certain matters that you should take under consideration.
- Type of Lease Needed. It is best to familiarize yourself with the different types of small commercial leases available and determine which works best for your situation.
- Rent Needed. It is best to research the rate being charged for rentals similar to yours in your area.
- Insurance: No matter the type of lease you have, it should outline your obligations for the insurance coverage on the building. Check with your insurance provider to make sure you cover all your bases.
There are other matters to consider, including what happens if either party needs to break the lease. As your commercial real estate attorney, we have experience in all these issues and can help identify, negotiate, and finalize terms to help you manage and lease your commercial property in Michigan.
Elements of a Leasing Agreement in Michigan
The terms used in a lease vary according to the specific type of lease and the jurisdiction in which the property is located. Even so, there are some elements that are common to all.
- All leases should address the rent amount and what is included in that amount, as well as when the rent may increase
- Leases should clarify the term for which they are effective, as well as how much notice each party is required to give the other if they do or do not intend to renew the lease
- Leases should also address whether or not subletting is allowed, and if so, any rules or restrictions
- Every lease should contain a thorough description of the property to prevent problems down the road in case the parties do not agree on whether or not part of the property, such as a side parking lot, is included in the lease
Another matter to include is a usage clause that clarifies the ways in which the property may be used.
Common Disputes Arising Out of Commercial Leases in Michigan
Unfortunately, disputes in commercial leases are not uncommon. Some of the most common issues that lead to alternative dispute resolution or litigation include:
- Failure by the lessor to pay rent in full when due
- Disagreement over who is responsible for repairs
- Either party terminating the lease
- Eviction of a tenant that refuses to vacate the property
No matter what issues arise, it is best to seek counsel from a commercial real estate litigation attorney who can advise you on the best way to proceed.
What Can a Commercial Real Estate Attorney Do For You?
Unlike residential leases, commercial real estate leases are not one-size-fits-all; they are very specific to the industry, the property, and the lease negotiations. For example, the rent for office space is not simply determined by the square footage (as is the case for most residential leases) but also largely based on how the property will be used. Another example involves maintenance, i.e., in residential leases, landlords remain responsible for most of the maintenance while in commercial leases, negotiations determine responsibilities.
Some of the major benefits you will receive by retaining a commercial real estate attorney include but are not limited to:
- Obtaining commercial leases accurately aligned with the letter of intent – the latter is a detailed document outlining monthly rent, lease duration, termination terms, square footage, and more
- Clarifying maintenance responsibilities as to things like security, parking lot maintenance, lighting, electricity, and more
- Negotiating fair and reasonable termination clauses in case the business fails and a tenant needs out of a lease sooner than anticipated
- Drafting, redlining, reviewing leases to ensure they are not lopsided in favor of the landlord, and this includes all things related to leasing the property, like responsibilities for utilities, maintenance costs, taxes, and security deposits
The important thing to remember here is this: commercial real estate leases are negotiable, and if negotiated right, they can save you a lot in terms of time, money, and stress. The landlord may draft the initial lease agreement, but you have the right to negotiate the terms and conditions. Legal counsel representing your interests in these negotiations is your best means to a fair and profitable lease agreement, which will ultimately benefit your small business.
Contact a Real Estate Attorney in Michigan Today
If you have questions or concerns about a commercial lease agreement in Michigan, let me assist you.