Five Crucial Commercial Lease Issues, Part 1

Sam Johnson’s unique combination of big cats and craft brewery ale had grown considerably from its debut out in the hinterlands of the Antelope Valley.

Now, Sam wanted something better located at a good price. After six frustrating months, Sam finally found a real possibility. Five million people lived within a 30-minute drive and the price was amazing.

He called me one morning, a mere two days before he was going to sign the lease. After congratulating him, I asked when he was sending over the lease for my review.

“But, why do I need a review? It’s a great location with a very reasonable price. Why should I pay you thousands of dollars to wreck my dream?”  

“A valid question,” I said. “What about if I can highlight five issues that have nothing to do with price or location but will most definitely impact how successful you are likely to be at this location? Will you then agree to have me review the lease?”  

“Ok, go ahead,” he responded. 

Here’s what I said.

First, there’s not many places where you can interact with a wild leopard while sipping on a decent Hefeweizen that’s not from Europe. So, you got to make sure that your proposed use of the property won’t run afoul of local regulations. For instance, several jurisdictions prohibit wineries, breweries and any sales of liquor within a pre-determined proximity to schools, churches, day care centers, etc. Also, the Alcoholic Beverage Control Board may have problems with you blending bloodthirsty animals with booze. There can be a number of other challenges, like parking, lighting, noise levels at certain times of the day, and a host of others.

If you do not confirm before you sign the lease that you can actually operate your business at that location and then find out that it’s forbidden, you’re sunk. The landlord is going to be demanding full rent for the full term of the lease even if you can never open up. It was your responsibility to make sure the location worked for you before you signed the lease.

And, staying with this theme of “permitted uses,” don’t forget to see what the lease says about how you can use the property. For instance, does it say, “For the brewing of beer and the habitation of wild felines?” If that’s the case, then the landlord can prohibit tastings and sales of your beer. After all, it only says you can make the beer. It is silent on the topics of retail sales and in-person tastings. 

Of course, if you decide to branch out to hard cider, the landlord can again say, “No way,” because your lease does not provide for that.

As for the big cats, what happens if you get the opportunity to also house some monkeys and giraffes? Can you do that under the use clause in the lease? Nope, because it is restricted to cats. You couldn’t even have wolves or hyenas or coyotes. And, of course, since the use clause only says “habitation” you will not be allowed to have visitors come to see the animals. Thus, what you had planned for that location is in now in the drain.

So, you want to make sure BEFORE you sign the lease that 1) you won’t face any challenges from the various forms of government, and 2) that the use section in the lease is sufficiently expansive that you can be allowed to grow and change as reality dictates.

In my next column, I will discuss point No. 2, renewals. ©

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