It sounds simple enough. You need 10,000 sq. ft. of warehouse space to house your inventory, or you need 5.000 sq. ft. of retail space for your karate studio or gym or restaurant. You drive around the areas that you like, you look on the public databases, and you find a place that suits every one of your needs. So, you sign a lease, and you are ready to move in.
Just as the moving trucks have been scheduled, you find out that you can’t use the property for your intended purposes. Think it can’t happen? It can, and it does. Worst of all, most lease language puts the onus of finding out whether you can use the space on the tenant. So, as the tenant, you would remain responsible for payment of rent and other charges whether you can use the space or not.
Many cities have re-zoned entire portions of their towns for specific categories of uses that may not be consistent with existing uses. For example, an area with a lot of warehouse space may have been re-zoned to bio-tech. The businesses that are there already are generally fine, and some buildings are often “grandfathered in” for new users as long as there isn’t a gap in the occupancy of that building for a particular use category beyond a certain time period. So, in this example, you may lease or buy a warehouse in an area of similar warehouses with tenants just like you, but your particular use and/or your particular building or area may not be able to be used for your intended purposes.
When the dot.com boom occurred several years ago, high tech businesses in different parts of the country were eating up downtown retail locations. In an effort to maintain the character of their downtown areas, many cities enacted statutes requiring occupants of the downtown storefronts to be retail in nature. They often define “retail” as someone with a high percentage of their revenue derived from the sale of goods. If you are a karate or yoga studio, a tutoring facility (like a Sylvan learning center, for instance), you don’t qualify as retail. They primarily sell services (tutoring sessions, Classes, instruction, etc.).
Here’s a third example. Some cities have imposed moratoria on new restaurants in certain areas because of parking issues and/or because the zoning authorities decided that they have enough restaurants there already. If you find a space in an area with a lot of restaurants and sign your lease, only to find out that you can’t open your restaurant there because of a moratorium, then you are in a bad spot.
You have to pay rent and other charges for the space anyway.
Many tenants, especially mom and pop operations and franchisees that don’t have good representation, just drive around the area looking for spaces, or they find spaces on computer databases. They see a bunch of “for lease” signs, and they pick what they think is the perfect spot. However, any number of things can stop you from being able to occupy the premises and to operate your business there, including zoning laws, moratoria on certain uses, height and density restrictions, parking restrictions, and many other items.
It’s better to be safe than sorry. Before you sign your lease, make sure that you can actually occupy and use the space that you lease. It isn’t the slam dunk that it appears to be in some cases.
This blog is presented by Evan Keith Langert, a Maryland leasing attorney and a Maryland leasing broker with over twenty years experience. Mr. Langert has negotiated scores of office, retail, and industrial leases in over twenty different states.
Read about other leasing topics on my blog at www.thelangertgroup.com.