Usually, when you negotiate a lease through your agent, you communicate your offer with the landlord through a letter of intent (LOI). The LOI is a legally nonbinding commitment letter that lays out the key terms of the lease.
Since I negotiated with the landlord in person, we didn’t have an LOI. However, as a formality, my agent still drafted one for me. Using this LOI, the landlord drafted our formal lease agreement.
You can never take signing a lease lightly. Once you sign, you are committed to pay rent for the entire term of the lease, unless you had negotiated an exit or a sublease clause into the lease. Hence, even if your business went under, you would still be responsible for paying rent for the remainder of the lease. With startups, it’s not unusual for the landlord to ask for a personal guarantee, which allows the landlord to go after your personal assets, regardless of your business entity, if you default on your rent payments. A sublease clause provides you the option to find another tenant to occupy your premises and pay your rent in your stead. With an exit clause, you would be able terminate the lease early for a penalty. Although, I hear it can be difficult to obtain.
Before you sign on the dotted line, it’s ABSOLUTELY important that you dissect the lease agreement with a fine-toothed comb. The difference in a single conjunction (“and” vs. “or”) can drastically alter the meaning of a statement, which could potentially cost you a lot of money and/or headache. I would strongly recommend having an attorney to review the lease for you.
Unfortunately, agents are not allowed to give out any legal advice. Because of this fact, my agent strongly urged me to hire a real estate attorney. She gave me the names of 2 people that she recommended. When I called them, I was quite taken aback by their exhorbitant rates. They charged $250 to $400 an hour with a 3 to 5 hour minimum. One thing that you have to know about the business world is that you will always get over-billed. So, when these guys told me that it would take 3 hours, my guess was that it would only going to take them an hour to review my lease. Because of this fact, I didn’t think it was worth shelling out $1,000 to $2,000 to these guys. I would’ve been willing to pay $500 to $600 at most, and even then, begrudgingly so.
Thankfully, I have a very good friend who’s an attorney. He told me that a large portion of these lease agreements are just standard boilerplate clauses, and that it would take him only an hour to look over it. He gave me great advice, and definitely, a large peace of mind. In all honesty, I think any good general lawyer should be able to review a straightforward commercial lease agreement, which would usually be the case for a solo startup practitioner’s office space. You will always hear someone say that you wouldn’t go see a dermatologist for your brain aneurysm, and that you shouldn’t go to see a malpractice lawyer for tax advice. To an extent, that is true. However, for uncomplicated issues, I think a general attorney should suffice. It’s probably similar to me prescribing Prilosec to someone with acid reflux (although it is OTC now) as an ophthalmologist, for which I have no problem doing so. Of course, having said that, you probably shouldn’t go to see a dentist for a urinary tract infection, and you probably should use an attorney with some connection to the busines world, and not a criminal trial lawyer.
Although I had an attorney look at my lease, I also read it on my own 3 times. It definitely is a completely different language, and it took me 3 to 4 hours to read the 21 page lease agreement the first time around. However, by the second or third round, I was able to get through it faster. I also began to understand most of it. These leases can be particularly confusing because of the way that they’re grammatically structured. I never knew that it was possible to write a half page paragraph with only one sentence. Lawyers are quite adept at writing huge run-on sentences. I guess they need to do so because they have to list all possible scenarios known to mankind. Nonetheless, reviewing it on my own was definitely worthwhile, and I agreed with most of what my lawyer friend advised me.
Once again, Google is a wonderful resource, and there are plenty of articles and websites that teach you how to review a commercial lease.
After my friend and I had finished looking over my lease agreement, I sent it back to the landlord with some revisions and clarifications. None of which were too complicated. Most were small things, and the landlord agreed to all my changes. The landlord and I both signed the lease agreement, I wrote a check out for my security deposit and my first month’s rent, and the lease became fully executed. I had my new office space!