Finding a suitable location is one of the most exciting and important parts of starting a new business. New business owners are often well-equipped to make decisions surrounding their target market and being located near their target customer base, the visibility of the potential location, and the economic stability of the area. After all, the new business owner has the business acumen and drive to take the new business beyond a good idea to a reality.
However, in deciding on a location, one area that new business owners often neglect is the terms of the commercial lease they have entered into with the property owner. Let's discuss why mutual assent is a term every business owner should know before entering into a lease agreement.
Mutual Assent
Under North Carolina law, the essence of any contract is the mutual assent of both parties to the terms of the agreement. [1] Mutual assent simply means that there is a meeting of the minds of all the parties, that all the parties each agree to all the terms and conditions of the agreement. [2]
Implicate in mutual assent is that the parties to the commercial lease, including the new business owner as the tenant, understand and authorize the terms in which they are agreeing to when they sign the commercial lease. Unless there are exceptional circumstances, it is not a defense for a party to an agreement to assert that they did not read the agreement or understand the terms of the deal they entered.
It is understandable to be intimidated by a commercial lease when presented with such; most commercial leases are dozens of pages long and contain highly technical legal terms. However, business owners are considered a sophisticated party that have the means and resources to negotiate and complete a full review of contractual agreements, and they will more likely than not be treated as such by the courts in any subsequent contractual dispute.
Thus, the new business owner should act as a sophisticated party by fully reviewing the commercial lease, understanding the terms and conditions that have been presented, and engage in negotiations to include terms and conditions to the commercial lease that will benefit the new business as the tenant.
Approaching Commercial Lease Negotiations
The simple fact in the world of commercial leasing is that leases offered by commercial landlords have elements of a contract of adhesion, which are contracts that follow a standardized form on a “take it or leave it” basis. These types of contracts do not afford the other party with a realistic opportunity to bargain.
At the end of the day, the property owner knows that their location is desired by the new business owner, and they may use this fact to persuade the new business owner to acquiesce to the terms the property owner offers. This is not intended to mean that the property owner is out to get the new business owner or desires to do any kind of harm to the new business by forcing unfair terms on the new business owner. Property owners are merely making efforts to get the best terms of the deal that they can to protect their own interests.
However, this does not mean that commercial tenants should be afraid to endeavor to do the same. Although the property owner may have a superior bargaining position in commercial lease negotiations, there are numerous areas for revisions that the new business owner can request that will be acceptable to the property owner. In approaching commercial lease negotiations, the new business owner should understand that their proposed business offers real value to the property, and the new business owner and should be confident in the strength of their proposed business.
An attorney experienced in these negotiations can help the new business owner understand what is and is not negotiable in the presented commercial lease. For example, commercial landlords will likely resist any change to the rent rate. However, if the new property owner is concerned about the overall monetary investment and monetary obligation that they will incur by entering the commercial lease, the commercial landlord may be willing to offer concessions in the form of a later rent commencement date, an increased tenant improvement allowance, and/or a reduced security deposit.
Further, an experienced attorney can help the new business owner request and revise the commercial lease to include terms and conditions that will protect the new business owner. The major areas that we typically address when engaging in commercial leases negotiations on behalf of our clients include: (i) landlord’s obligations to prepare the space for the tenant; (ii) the rights and obligations of the parties in maintaining and repairing the property, including situations where the property has been damaged or destroyed by a casualty; and (iii) the rights and remedies of the parties in the event of a breach.
Conclusion
Mutual assent to the terms of a commercial lease is vital to forming a contractual arrangement. Upon signing a commercial lease, the new business owner agrees to all the terms and conditions of the agreement, and they should not do so without reviewing and understanding what those terms and conditions are.
Moreover, new business owners should not sign the commercial lease without asking for revisions that will protect their legal interests. Although the landlord may have the upper hand in these negotiations, the new business owner, by opening its strong business on the property of the owner, is providing real, tangible value to the property and the owner, and they should be confident in asking for reasonable revisions.
As part of this process, the new business owner should retain an experienced attorney who can help them navigate the nuances and complexities of the commercial lease and its negotiations to ensure a healthy and long-lasting relationship with the property owner.
[1] Schwarz v. St. Jude Med., Inc., 254 N.C. App. 747, 754 (2017).
[2] Black’s Law Dictionary, 2d Ed., https://thelawdictionary.org/mutual-assent/.
Dye Culik is a business law firm located in Charlotte, North Carolina. Attorney Bradley Harrah works with businesses to make sure they are protected in the commercial lease process to enforce mutual assent and negotiate terms that work best for the business. Before signing, contact us to set up a consultation with Attorney Harrah about your commercial lease.
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