Nashville’s Changing Skyline: What This Means for You and Your Company’s Lease
Posted in Business Law on April 20, 2016
In the last two weeks there have been two huge announcements for Nashville development: a $100M dollar high-end skyscraper at the corner of 8th and Demonbreun and the building of the largest Skyscraper in Nashville in SoBro. With all of this development, there is no doubt that there will soon be an influx of new commercial space for lease. If you are a small business owner, you may want to keep the following key points in mind before you sign or renew a commercial lease agreement.
1. You don’t have to sign your life away
Most lease agreements are drafted by the landlord and its attorney so they are usually drafted in the landlord’s favor. This does not mean that you can’t negotiate certain aspects of your lease. For example, some form lease agreements may have a provision requiring a personal guarantee by a company owner. This is common when occupancy is high, like it is now. A personal guarantee requires an individual to be personally responsible for the contractual obligations of the lease if the company cannot pay its rent or fails. With more inventory of commercial space on the horizon, landlords may be more eager to secure long term tenants and this means they may be more willing to change or remove unfavorable lease terms like a personal guarantee. If your lease agreement contains a personal guarantee, negotiate the removal of it with your landlord before signing on the dotted line.
2. Protect your assets
Lease agreements often contain general security agreements that provide the landlord with security over and an interest in your company’s assets in the event that your company is unable to or fails to pay the lease. Sometimes this security interest provides an overly broad security interest over “contractual rights”. It is important for you to know that “contractual rights” include intellectual property of your company. So for example, if you have invented technology to become the next Facebook but you don’t have enough money to pay your lease and miss your payments, your landlord could use this provision to claim an interest over your highly coveted (and highly profitable) invention. Make sure you read your lease terms carefully and try to negotiate the removal of overly broad and all-encompassing terms like “contractual rights”.
3. Make sure you have an out to move up or move on
Here is a hypothetical situation: say your highly profitable tech invention hit it big, you need more space. Your currently leased space is in the biggest office building in Nashville; surely there are larger spaces available. It is a good thing you negotiated into your lease agreement a Right of First Refusal that requires your landlord to tell you first if there is a space available for lease in your building. Now you can make sure your office space grows with your company.
Another circumstance that you may find yourself in as a business owner is facing a restructure or the need to downsize. If you have to move on to another space or another venture, make sure your lease contains a provision that allows you to Assign or Sublet. An Assignment of Lease will allow you to find another tenant that will take over the terms of the lease. A sublet provision allows you to find a tenant that will rent your space from you for the remainder of your lease. Make sure that you discuss these options with your landlord before signing your lease.
4. Get Legal Advice
We aren’t just saying this because we are attorneys. Lease agreements can sometimes contain unnecessary and confusing wording that may result in overly broad, unwanted or unexpected obligations. Having an attorney review your lease may be an upfront investment but it could save you thousands down the road. We can help you make sense of your lease agreement and ensure your interests are protected. We can also act on your behalf to negotiate with your landlord for favorable terms to be included or re-negotiate provisions to ensure your obligations are fair.
Honest Advice. It’s what we do. Larry R. Williams, PLLC Attorneys At Law.