Lawyer Tracy Jong
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For attorneys, I know your time is valuable, and so far, Tracy and Sue are the best, most down-to-earth lawyers I have ever met. It is my pleasure paying for their advice about my businesses because I know that ultimately it will save me money in the long term.
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RESTAURANT, WINERY, AND LIQUOR LICENSE LAW INFORMATION
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RESTAURANT, WINERY, AND LIQUOR LICENSE LAW INFORMATION
Commercial leases are part of the foundation of your business. They determine where you conduct your business, under what conditions the space is available to you and for how long and how much, and what you and the landlord are each responsible for. It is extremely important that you understand exactly what the lease contains for two reasons: (1) you will be responsible for following the terms and conditions, and (2) you want to ensure that the lease will support your business goals. Most commercial leases bind the tenant to the space for five years or longer – being stuck in an unfavorable lease for that length of time could be detrimental to your business.
There are many commercially available lease forms that lay out standard conditions, and many cover similar issues. However, a lease is a binding contract, and each situation and negotiation is different. There are various practices that are common in certain industries, certain space types and certain local regions. For example, a lease for retail space in a shopping mall will be much different than along a main street of storefront shops. A lease for a space in New York City will be much different than a space in Buffalo. A gas station lease will be different than a lease for a medical office.
For these reasons, it is best that you consult an attorney to review a lease before you sign it and help you negotiate favorable terms and conditions that should be added or changed to clarify points and to modify the lease to fit your business model. Your attorney can and should explain what the lease clauses mean and ensure that you are getting what you think (and what you need) in the lease.
Learn More About Commerical Leases:
The importance of a lease
When you invest in a business, one of the most important assets is its lease rights. After all, how valuable is a business if it has no place to operate? How many customers might be lost or additional cost incurred if you were forced to move to a new location? Invariably, rent will also constitute one of the largest monthly operating expenses.
Many business owners minimize the importance of this document, thinking “it’s only a lease.” However, it really is important to get good advice and have your lawyer review the lease before you sign. Consider, for example, a 10-year lease for $3,000 per month. This is a $360,000 legal commitment, and with rent escalations and additional rent, it is likely to realistically be more than a $500,000 expense. Also, it is almost always the case that the business lease will be personally guarantied by the principals. Thus, this obligation will not be discharged if the business goes “belly up.” Your personal assets (home, vehicles, stocks and even retirement accounts) are at risk.
Your attorney may be able to negotiate more favorable lease provisions, such as:
Restrictions on the landlord’s ability to rent another unit in the same strip mall to a competitor
Limitations on personal guaranty obligations
Broadening the use clause to allow other uses for business expansion, sale or sublease
Limitations on additional rent or rent escalations
Contingency provisions for liquor license or franchisor approval
Goals of lease negotiations
Lease negotiation is an important step that should be taken seriously before signing any lease. These leases are high-value contracts and are negotiable. They are not “take it or leave it” in most cases. Our goals of lease negotiation on behalf of a commercial tenant include:
Minimize ways to lose possession so that the tenant will not be forced out for minor issues.
Reasonable limits on CAM charges
Non-compete provisions in strip malls for similar businesses
Minimize personal liability of corporate guarantors
Clarify and quantify additional rent obligations
Maximize cure periods so the tenant is not quickly evicted for minor breaches
Have notice of breach sent to tenant and attorney so that action can be immediately taken to correct any problem and avoid legal action
Include a broad use clause to allow you to operate another business in the space, or re-lease to another business
Simple sublease or assignment procedures to allow for each transfer of the business if you sell
Reciprocal legal fee provisions so you can recover legal fees if you have to sue the landlord
Costs for structural maintenance and repairs (and HVAC) made the responsibility of the landlord
Maximize renewal options to help with long-term business planning and increasing the value of your business in a sale situation
While a direct lease (a lease between you, the tenant, and one landlord) is always the best situation, many new businesses can only afford a sublease situation with more flexible timeframes and terms. If you do sublease, it is imperative that you carefully read all superior leases – you will have multiple landlords and must understand how that affects the conditions of your lease. You must also be certain that written consent to each sublease is obtained before you commit to any sublease.
When an outgoing tenant gives its lease rights to a new tenant, it is often done by a lease assignment. In this case, the new tenant steps into the shoes of the old tenant in the same lease contract. Written consent of the landlord is required and the landlord’s concern is generally the financial credibility of the new tenant. Sometimes, but not always, the outgoing tenant is relieved of further obligations. Often, the landlord will hold both the old and new tenant liable. An attorney can be helpful in limiting liability and risk for the outgoing tenant.
Commercial Space Requirements
It is helpful to write down exactly what your requirements are for a commercial space. This will aid in the search for the premises, whether done yourself or through a commercial broker. The following is a sample of what should be included:
ABC, Inc. Commercial Space Requirements
PROPERTY – desired location
City Of Rochester
Mixed warehouse with office space
15,000-25,000 square feet
20-30 parking spaces
COMMENCEMENT OF AND LENGTH OF TERM
Immediate, 2 year initial lease term
As long as Tenant is in full compliance with the lease, Tenant shall be entitled to 3 optional 2-year renewal terms on the same terms and conditions.
Tenant shall be responsible for the cost of gas and electricity consumed in the Premises, as determined by a separate meter serving the premises. Cold water to the Premises shall be supplied by Landlord. Tenant is responsible for installation, maintenance, and ongoing usage cost of telephone, data and internet service.
Tenant shall be responsible for the cost of cleaning the Premises.
The entire Premises shall be taken by Tenant in its "as-is" condition
All parking is free of charge and available on a non-reserved first-come, first-served basis.
Tenant is solely responsible for the installation and monitoring of its own
security system should Tenant determine that such a system is desirable;
provided, however, Landlord shall have access to the Premises at all times for
emergency and maintenance purposes.
Letter of Intent
During the process of lease negotiations, one party (usually the landlord) will provide a Letter of Intent which sets forth the terms and conditions for a lease. To reduce legal fees, the landlord or broker will negotiate the major terms before giving them to the attorneys to reduce to writing and finalize the details. The Letter of Intent requires signature as acknowledgement of the terms and conditions, but it is not a binding contract and does not take the place of a lease agreement. A Letter of Intent may look like:
Letter Of Intent (PDF)
Memorandum of Lease
A Memorandum of Lease (also called a “short-form lease”) is a document that summarizes the lease’s basic terms. During lease negotiations, a tenant may require that the landlord record the Memorandum of Lease with local property records at the county clerk’s office. Once filed, there is a public record of the lease and announces to third parties of its existence and the tenant’s rights under the lease. In the event that something should happen to the property, like a bank files a lien against the building where the space is located, the tenant’s lease will have priority over the lien.
A Memorandum of Lease must include the names of the lessor and the lessee, their addresses as set forth in the lease, a reference to the lease with its date of execution, a description of the leased premises that clearly identifies the property, the term of the lease, any rights of renewal or extension of the lease, and the date of commencement of the lease term. The document should contain a notary “acknowledgment” form that is required for deeds.
Memorandum Of Lease (PDF)
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