Leasing property for your business for the first time can be a daunting task. The list of considerations is unending and, in considering those that are the most obvious—location, accessibility, and your space and functional support needs—it is easy to overlook some other critical things to consider:
Liability of Leasing Before Formation/Personal Liability for the Lease: If you lease your property prior to formation of your business or sign the lease in a personal capacity you may be personally liable for the term of the lease. If you have any doubt as to the potential for personal liability, consult with an attorney.
You Can Negotiate “Standard” Lease Clauses: Lease are contracts, and like all other contracts, the terms are negotiated by the parties involved. Even though the landlord may proffer a “standard contract” and pressure you to sign it as is, it is smart business to review the terms and counter where necessary. Examples of things to watch out for: (1) relocation clauses allowing the landlord to relocate you into “similar space”, (2) one-way indemnification clause (you indemnify the landlord, but not vice-versa), and (3) clauses that lead to potential additional costs (common area maintenance fees, minimum insurance requirements, etc.). Again, as in any contract negotiation it is always wise to consult an attorney. If your landlord refuses to negotiate on lease terms think long and hard about how they will be to work with over the course of your lease. Moving a business is costly and disruptive, if your potential landlord is unreasonable upfront how will they be to work with as your business grows?
Safety Considerations: Remember that not only must the location meet your functional needs it must also accommodate all local, state, and federal safety requirements. In Texas, if you have <250 employees at a particular site and <500 in total you may want to look into the OSHCON program. OSHCON is a free OSHA Compliance Assistance program offered by the Workers’ Compensation Division of the Texas Department of Insurance (TDI). One of the many services they offer are free safety inspections performed by personnel trained to OSHA standards (use of OSHCON will not trigger an OSHA inspection).
Insurance Considerations: If you are not the only tenant in your potential location, make sure that you check out what other activities/businesses are conducted in and around the building, the area’s fire protection rating (see the Texas Commission on Fire Protection assessments), and the proximity, use, and installation of fire suppression systems, fire-retardant building materials, alarms, and hydrants. These items all factor into your commercial insurance premiums and can result in unanticipated costs if they are viewed unfavorably by your insurance agent. Be sure and get coverage quotes before you sign a lease. Information on commercial insurance coverage can be found on the TDI website.
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