For many businesses, entering into a lease is an essential and important part of their businesses. Other than payroll, lease payments are often a business’s largest expense. However, given the complexity and sheer length of a typical commercial lease, it is a daunting proposition to review and negotiate a lease on your own. This is the second in a series of articles discussing the major issues to be considered in a typical commercial lease.
What can you do in your leased space? If my cheese shop doesn’t do well, can I also sell athletic shoes in my leased space as a side business? Can I use my office space to store mulch for my landscaping business? Can I open up my office space on the weekends to sell antique furniture?
As with many questions you may ask your attorney… it depends. Let’s review some of the things you should consider:
- No Zones About It
You can only operate or conduct business in accordance with your local zoning ordinances. For example, if your leased space is zoned for commercial use, and only commercial use, you can only use the space for commercial uses. If zoned for industrial, you get the drift. Common zoning categories are residential, industrial, and commercial. These broad categories are divided into subcategories, which will further dictate the allowed uses of a certain space. For example, some commercially zoned properties can only be used for retail, some can only be used for office. A competent commercial real estate broker or attorney should be able to you give this information.
- No In-Fighting Among Competitors
Additionally, the lease will dictate what you can or cannot do in your space. You may be able to sell men’s clothing, but not women’s clothing. You may be able to operate a deli restaurant but not a seafood restaurant. A host of different factors can determine what your landlord is willing to allow. One of the most important reasons in retail settings is to limit competition between the landlord’s tenants. This is why you won’t generally see two hair salons in one strip mall.
- No All-Nighters
A peripheral issue to your use of the leased space is hours. For retail spaces, a landlord will mandate that you are open for business during certain hours, or for a certain amount of hours, on certain days. Violations of this type of clause can be construed as a default under your lease so proceed with caution. In office spaces, while you’ll generally have access to your space 24/7, the landlord may not provide heating or air conditioning before or after normal business hours.
- No Funny Business
Needless to say, regardless of what it says in your lease or what others may have told you, you cannot conduct unlawful activities in your leased space. No unlawful activities. None!
PRACTICAL COUNSEL: Prospective tenants should take care when reviewing a lease and applicable zoning ordinances to ensure that they will be able to operate their intended business at the leased space. While landlords are usually aware of the zoning of a certain space, it is ultimately the tenant’s responsibility to independently conduct due diligence. In the event that there’s a conflict between the use clause of a lease and zoning, zoning will prevail and you may be stuck with a space that is unsuitable for your purposes. As with any contract for your business, it is essential to have an attorney review your lease for “use” related, as well as other issues and lease terms.