A direct commercial lease is an agreement between your business and a landlord for you to occupy a space for a specified amount of time. It is beneficial to have an experienced broker assist you with the leasing process if you go this route.  A direct lease is preferred if you are a stable well funded business whose future looks bright. A long term direct lease also gives you negotiating leverage with the landlord.  If you are looking for a lengthy term lease (3-5 years) you should be able to get some concessions, especially in the currently depressed market.

Here are some important things to think about before signing a direct lease agreement:

Length of Term: A long-term lease is a large burden for any business, especially if you are a small or medium sized business in today’s unstable market. Don’t let anyone talk you into a lease term you are not comfortable with.  If you are a small business try and negotiate a lease term that is 1-2 year range and then discuss the renewal clause. Long term commitments usually benefit the landlord and severely limit your options if you outgrow the space, downsize or need to change locations. Landlords do not have incentive to find a subtenant if you break the lease because you are liable to pay for the entire term. Try and think about your lease as a total obligation instead just a monthly obligation.

Renewal Clause: Make sure you take a close look at the renewal clause. An unfortunate renewal clause could force you to move or sign a renewal for a term longer than you might need. Also determine what you want your options to be at the end of the lease. If you are planning to vacate the space the renewal clause is not as important, but if you are planning to stay make sure the renewal clause clealy states length of the renewal term and any rent increases.

Get it in Writing!: Never rely on an oral transaction, all terms should be in writing. Important things to be clearly written into the lease agreement:

• What is the landlord responsible for fixing
• Renewal option
• Common area maintenance fees (CAM), or any other costs that get passed along in a Triple Net (NNN) lease
• Tenant improvement allowance
• Security deposit terms
• Specifis of your personal guarantee of the lease
• Late charges on rent
• Insurance requirements, almost all leases require this, meet with a commercial insurance agent

Who is a direct lease for:

• Medium to large companies
• Well capitalized companies
• Companies with good cash flow
• Companies with a stable business not subject to volatile markets
• Companies wanting to occupy an office for an extended period of time (over 1 year)

Current Market Conditions: Current market conditions favor the tenant since there is copious amounts of space available. Do your homework on what the market has to offer and consult a commercial broker for additional help. When negotiating do not let the landlord push you into something you are not comfortable with since there is probably a similar space right down the street, but still remember to be reasonable!