This is a transcript of an episode of the LeaseSmart Podcast.
Craig: Today I’m going to discuss a Lease Review Checklist. Covering all the elements of a commercial lease is too long for this podcast, but there are the Top 10 items that anyone reviewing a lease or a lease proposal needs, to make sure they have covered the most critical items carefully. I will share those with you today.
I usually like to start at the top of the lease, not necessarily the most important thing first, but cover things in chronological order. In a typical lease or lease proposal, what comes first? The first thing we always look at is the entity.
Now I didn’t used to cover that element so much, because it really should be done already with your CPA and your attorney, and the main question would be, “Are you going to lease this space in the name of a fresh, new LLC, or a company that has been around a long time and has substantial assets and/or owns multiple locations?” There are operational and tax issues that affect your decision, such as insurance issues, liability issues, all kinds of things. And in fact, many times when we’re in the initial lease proposal stage, as far as the entity is concerned, we’ll say “an LLC to be formed”, because it depends on the name of the property, or the city that we’re in, or something like that, and the tenant doesn’t want to go through the trouble and expense of forming an LLC until we have a deal. So that element ends up taking more time in thought, in some cases, than you would imagine. That’s the first thing we do.
Then, also, while we’re on the entity issue, we’ll skip to the next thing that is affected by the entity, and that is, of course, the personal guarantee. If you are going to sign a lease in a fresh, new entity that has no assets, it may be impractical to think that the landlord is going to do all kinds of stuff for you because he knows that you as a tenant could back out of that deal with no trouble. That’s something else to think about. If you want to do the fresh entity with no assets, that’s fine, but then the Landlord will want a personal guarantee, and that triggers further issues, like: limiting that guarantee to protect you. Does it have to go the full length of the lease? Not usually. It depends on all the terms of the deal. [Continue reading]