June 01, 2011 — Sometimes, particularly for photographers just starting out, leasing or renting a studio space can be a much more viable option than buying. But who drafted your studio lease? Chances are, it came from your landlord or your landlord's rental agent. It's probably printed and is half a dozen (or more) pages long. Your landlord likely filled in a few blanks — your company's name, some dates and the rental amount — and presented the lease to you for signature.
It's a familiar scenario. And if you went along with it, you undoubtedly got stuck with a lease that strongly favors the landlord.
Next a landlord gives you a lease to sign, don't be intimidated. Review the lease carefully with your lawyer. Be prepared to challenge lease terms that are unfair.
Unless business space is extremely tight in your community, you should be able to remove coercive lease language and add clauses that make the lease more balanced. Objectionable wording can be crossed out; desired wording can be inserted. If you and your landlord initial these changes, they're perfectly valid. For more extensive revisions, have your lawyer draft an addendum that can be attached to the lease.
Assuming that you and the landlord have agreed on the amount of rent you'll be paying, here are some other lease terms to think about:
1. How much space are you leasing? If you're leasing only part of a building, and are paying rent based on the number of square feet you'll be using, you need to know how the landlord is computing the square footage. Find out whether the square footage figure includes a portion of the areas used in common with other tenants such as hallways, restrooms, elevators and storage space. It's a good idea to attach a drawing to the lease showing the exact location of your space. Are parking spaces being set aside for your business? Then specify this in the lease.
2. What about occupancy delays? What happens if your space isn't ready on time for you to move into? Can you cancel the lease? Will you receive credit from the landlord for extra expenses that a move-in delay might cause your studio?
3. Who pays for what? The lease should state whether you or the landlord are responsible for property taxes, utilities, insurance, maintenance, repairs, janitorial service and trash collection. What happens if there's a problem with the plumbing, electricity or air conditioning? Who's responsible for taking care of it?
4. What improvements and upkeep services will the landlord provide? If the landlord is going to install partitions in your space, or paint it before you move in or make other improvements, this should be spelled out in the lease. For anything other than simple improvements, attach a set of detailed plans and specifications. Try to make the landlord responsible for upkeep of the landscaping, parking lot and hallways. If the landlord is going to wash windows throughout your building or provide janitorial service, say how often these services will be performed. And if the landlord is furnishing heating, ventilating and air conditioning, tell what hours and on what days these services will be provided. If your business will be operating evenings or on weekends, you want to have adequate heat in the winter and air conditioning in the summer during all business hours.
5. Do you have the right to renew the lease? If you have a three-year lease, try to reserve the right to renew the lease for two additional three-year periods. State what the rent will be during the renewal periods or include a formula for determining it. Avoid a clause that says that the rent during renewal periods will be negotiated. That is too vague and could lead to legal problems if
you and your landlord can't come to terms. Most renewal clauses require you to give the landlord notice in writing at least three months or six months before the lease expires if you wish to renew or extend it. If you forget to send the notice, you may find yourself looking for new quarters before you're ready to do so. To avoid this, provide that renewal will be automatic unless you send a notice of cancellation to the landlord within the specified time period.
6. How are rent increases computed? It's quite common for landlords to require higher rent during each year of the lease. You have more certainty if you state the exact rent, for example, $2000 per month for the first year, $2100 for the second year and $2200 for the third year. But some landlords prefer to use a formula instead, such as one that requires you to pay for prorated increases in taxes, utilities and other operating costs. If you use this kind of formula, look carefully at what the base year will be for computing these increases.
There can be some problems if you're moving into a new building, which isn't fully occupied during the first year. Operating costs during that year may not provide a fair basis for future rent increases. Some landlords tie rent increases to the Consumer Price Index.
7. What businesses will share the building? If you're not renting the entire building, consider lease restrictions on who else may rent there. Imagine if another portrait studio opened right next to your own. The landlord may agree to exclude any other tenant with a business similar to yours so that you're not faced with nearby competition. You may also negotiate a clause that restricts the landlord from renting to a business, which, while not competing with you, is incompatible with your operation. If you're a family photographer, for example, having a nearby business that discourages children or families to visit the area (i.e an adult-themed store or liquor store) could affect your prospects.
8. When can the landlord enter your premises? Many standard leases allow the landlord to come into your premises at any time to make repairs or inspect the premises. Usually the landlord will agree to modify such a clause. It's reasonable to provide that the landlord can only enter your leased space during normal business hours, unless there's an emergency, such as a burst pipe or electrical hazard. Since repairs can be disruptive, you might also provide that the landlord will consult with you before making repairs and will schedule them for a mutually convenient time.
9. Can you sublease? Suppose you outgrow your space or find a better location. Do you have the right to sublease the space to another business? Many leases say that you can only do this with the landlord's permission. This can be a problem if the landlord is arbitrary and refuses to grant permission, even though you've found a suitable tenant. The solution? Add language such as this: "Landlord will not unreasonably withhold consent to a sublease or an assignment of this lease."
10. What kind of signs can you have? You're likely to need a sign to identify your business and attract new customers. But leases commonly say that the landlord must approve any sign in advance. You can get around this by having the landlord approve your signs at the same time that you sign the lease. If you do this, attach a drawing or photo of the sign to the lease so that there can't be an argument later about what you agreed on.
11. How about additional space? Reserve the right to pick up other space in the building if you want to expand your business. This can be done through a right of first refusal, which says that before any other vacant space in the building is leased to someone else, the landlord must offer it to you on the same terms. You can have a similar provision for purchase of the building. Here, the landlord would have to give you the chance to buy the building before selling it to someone else. You would have the opportunity to meet any bona fide offer.
12. Can you make and keep improvements? Your lease may state that you can't make improvements or alterations to the premises without the landlord's permission. Meet this clause head on by submitting your plans to the landlord before you sign the lease — and don't sign unless you get approval. Also, provide that the landlord will not unreasonably withhold consent to future improvements. Watch out for lease language that prohibits you from taking your improvements with you when you leave. Make sure that you can remove any attached items that can be taken without damaging the property such as air conditioning units, light fixtures, shelving and cabinetry. Consider a provision giving you access to the premises before the lease begins so that you have a head start on installing improvements.
13. Are the insurance requirements reasonable? Insurance provisions are often the most complicated part of a lease. The lease may call for overlapping coverages, which can be costly, or there may be gaps in coverage, which leave you uninsured in some instances. Have your insurance agent review the lease to eliminate overlaps and gaps, and recommend a reasonable insurance program for you and the landlord. Insurance provisions in the lease are often one--sided, requiring only the tenant to carry insurance. A well--drafted lease should require the landlord to maintain casualty insurance so that funds are available to promptly rebuild or repair the building if it's destroyed or damaged by a fire or windstorm.
14. What kind of business can you conduct? Leases usually limit their use of the premises to a specific business. This is okay, but be sure that the business is defined broadly enough to cover future changes in your business use. For example, you may want to expand your studio to cover video production or album making. Be sure you can add new products and services without running afoul of the lease language.
15. Can you cancel the lease? Suppose a fire damages the building and your landlord is slow to repair it. Anticipate this problem by reserving the right to cancel the lease and move elsewhere if repairs are not completed within 15 days.
Fred S. Steingold practices law in Ann Arbor, Michigan. He is the author of Legal Guide for Starting and Running a Small Business and The Employer's Legal Handbook published by Nolo. Legal strategies may vary depending on the state in which you live and the specifics of your situation. See your lawyer for legal advice.