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Leasing commercial space instead of committing yourself to owning commercial real estate can be an excellent decision for any small business owner, but it is crucial to understand the differences between commercial leases and residential leases. Lease documents can be overwhelming at first glance. Leases are lengthy, full of unfamiliar terms, and always written to the landlord's advantage. The following are tips to consider when negotiating a new lease, or renewing an existing lease:

Rent and associated costs

Rent, unlike other business expenses, is a fairly inflexible part of your overhead and can be the largest expense for a business. Commercial rents are generally measured by the annual cost per square foot of the space. It is essential that you also establish the other costs associated with the lease of the space as well. For instance, how much space are you really renting? What portion of the heating and air conditioning are you responsible for and what is the average monthly cost? Who is responsible for repairs or improvements? What building services are included? As you plan your finances, you don't want any surprises.

Length of lease and renewals

A lease is a legal contract between your business and a landlord/lessor. Remember, it is just as important to pin down when the lease will begin, as it is to determine when it will end. Commercial leases run anywhere from three to ten years, so it is important that you know exactly what you want or don't want in a lease before you begin looking for space or initiating the negotiating process. When renewing a lease, renewal negotiations should begin at least nine months in advance of the lease expiry date. Tenants who cannot negotiate a suitable arrangement within the first few months of this nine-month window will still have time to decide whether to exercise their option to renew, or begin the relocation process.

Negotiating is important

The key to successful lease negotiations is knowing what you want, understanding what the lease document says, and being reasonable in your demands. It is therefore important to research and compare what other landlords are offering. There are many tenant inducements that can be negotiated with the landlord, for example, a free rent period, tenant allowance, no deposit, low rental rate, and a suitable location. But also be ready to compromise, as it is highly unlikely that the lessor will tailor the lease to all your exact specifications.

Who's responsible for insurance?

In the rush to firm up a lease, insurance rarely gets the attention it deserves. Landlords in general are expected to carry a comprehensive policy on the building that covers liability for common areas such as lobbies, stairways and elevators, and that provides casualty protection for the building itself. However, they also have the right to insist that tenants carry their own insurance to protect the landlord against claims that might arise from the conduct of their businesses (a visitor who trips on an office carpet, for example) and "contents and improvements" coverage that protects his investment in the property itself.

No matter how urgent your need, or what type of space you require for your small business, both landlords and tenants should carefully read their lease agreement as the majority of leases have terms and conditions that spell out the obligations of each party. Considering the financial commitment that is being made, it is advisable to have a lawyer, who is familiar with commercial leases, give you an opinion, so that you clearly understand what you are signing up for and what you will be responsible for.