Real Estate

3 Commercial Lease Horror Stories and How to Avoid Them

When you’re choosing a new commercial space, a lot of worst-case scenarios may run through your mind, and that’s OK. All of the scenarios you’re imagining have happened to real business owners.

Many of those worst-case scenarios can become even-worse-case scenarios. The fallout may even be catastrophic and result in the closure of the business for good.

With that in mind, here are a few cautionary tales that anyone looking for commercial real estate should be aware of.

The 500k Tenant Who Never Was

Spending too much is always the main worry when looking at any commercial space. But can you imagine paying $500,000 for literally nothing?

This particularly poignant story in Forbes reveals the dangers of signing on for something based on reaction, instead of reality.

An international company targeted Atlanta for their new US head office. They excitedly signed a lease and started planning. However, they had not received official approval to operate in the US. Unfortunately for them, that approval never materialized and they paid over $500,000 in rent and fees, without ever actually stepping foot in the space.

The lesson: Even if you’re 99.999% sure about something, wait for all of those nines to roll over into zeros before entering into something as substantial as a commercial lease.

Gift-Wrapping a Dream Space to Your Competition

Your would-be landlord says they want to work with you, but they say if you go through a broker they will have to increase your rent to cover the commission fees. You agree because you want to close this deal ASAP.

Was this building manager trying to save you money? Or do they want to sign you right now before you find something better? Working without any commercial real estate advice can lead to you thinking that you’re getting a far better deal than you actually are.

Meanwhile, you miss out on an incredible property that is tailor-made for your type of business. This is why your competition snaps it up and moves in, while you’re stuck in a less desirable property in a long-term lease.

Uncertainty of Warranty of Habitability

Let’s say you’re leasing an office space. A December storm is on the horizon. The cold and roads are so bad you circulate an email early in the morning telling your whole staff to stay home. While the office sits empty for a day, the power goes out. A pipe freezes and bursts, causing very serious water damage to the floor and to nearby electronics.

Is your building manager or landlord on the hook for this damage? Unfortunately, no, and this blindsides business owners nearly every single day.

A residential lease would protect you in this scenario with what’s called, “warranty of habitability.” But this may not be the case for a commercial lease. In fact, if you’re in a NNN lease, you’re 100% responsible for all repairs.

These interventions from Mother Nature have caused far too many businesses to have to close their doors for good.

The reoccurring theme from all of these stories is to never rush into a commercial lease. There may be a sense of urgency created by how competitive your market is. Or you may feel pressure from the landlord (or your own stakeholders) to get this deal done ASAP.

Do everything in your power to make sure that you can always do your due diligence and seek out expert advice before committing.