Consider hiring lawyer to look over lease

September 20, 2015

Q: I have found space to lease for my new washateria, and the landlord has given me her standard lease contract. Should I just sign it?

A: Before you sign anything, make sure you understand and agree with all the terms of the contract.

"There is no such thing as a 'standard lease,' and landlords almost always negotiate," says Benjamin Miller, a Houston real estate attorney with Sponsel Miller Greenberg. "Don't lose sight of the fact that the 'Standard Form Lease' represents the landlord's wish list and, if not appropriately modified, may not serve your interests when issues arise."

A lease is much like any business agreement in that it sets out the parameters of a business relationship. You cannot easily break or change a commercial lease. It is a legally binding contract, and a good deal of money is usually at stake.

Hiccups in relationship

When everything goes as planned, most any lease will serve the parties well. The true test occurs when there are hiccups in the relationship. If the lease has not been drafted carefully, a hiccup can become a major problem without a clear solution.

There are, in general, three types of commercial leases. With a gross lease, the renter pays the landlord a fixed monthly rent. It is then up to the landlord to pay all the expenses of operating the building. In a triple net, or NNN, lease, the tenant not only pays base rent, but also part of the building's operating costs. These costs include property taxes, insurance and common area maintenance. Hybrid leases have features of both gross and triple net leases.

Triple net costs are shared according to the percentage of the tenant's square footage to the building's total square footage. So, Miller advises, "Pay attention to what is included in NNN costs and get the right to audit the landlord's cost records."

Maintain the areas

Common area maintenance is generally the amount of additional rent charged to the tenant to maintain the areas of the property shared by all the tenants and from which all tenants benefit. These include repairs, cleaning, janitorial and trash services, as well as personnel costs associated with the property. Most often, common area maintenance doesn't include capital improvements, tenant build-out expenses, legal fees, costs for services to other tenants, commissions to brokers, or costs arising from a landlord's negligence.

You should seriously consider having your lease contract reviewed by an experienced attorney.

Seller financing can help sale of small business!

September 6, 2015
Q: I'm trying to sell my small business, but I'm finding it difficult to do so at the price I need in order to retire. Other than dropping my price, what can I do?

A: Others in your situation have found that offering some seller financing facilitated the sale of their businesses.

The reason is obvious: Many buyers don't have and can't borrow all of the money necessary to purchase the business outright. And those who do may prefer to leverage the purchase to increase the return on their investment. And of course most lenders do not offer anything close to 100 percent financing on a business sale loan.

Seller financing can be a win for both parties. For you, it makes selling the business easier. By helping to finance the sale, you can get a better price and a faster sale. Other benefits include getting an ongoing interest payment that is typically more than you could get from another investment.

If there are any problems with the business, the seller can negotiate an "as-is" provision, which would be hard to do with more conventional financing. If the buyer defaults on the note, the seller gets the business back and keeps all the payments made up to the default. 

Of course, there are risks involved. The main one is that if the buyer defaults on the loan, you may be forced to repossess a business you no longer want that may have been damaged by the buyer. But a seller can diminish the likelihood of that happening by reviewing the buyer's credit history, statements from financial institutions, employment history and other references before the purchase.

For the buyer, the fact that an owner is willing to finance some or all of the sale is evidence that the business is sound; otherwise the seller would not finance it.

Beyond offering to finance part of the sale, other things you can do to help promote the sale of your business include hiring an experienced business broker who has access to more qualified buyers, thereby saving you time, money and headaches. The broker will help you to value your business accurately.

And while dropping the price is not something you want to hear, you will know the price is finally right when the phone starts to ring. There is a sweet-spot price for your business where it will sell, though that may be less than you want.