Leasing a site for your business: critical terms to know for lease contracts

One of the most important decisions for a small business is deciding where to locate. This decision depends largely on what type of business you are running. A solo insurance agent may choose to work out of a home office, but a retail seller of clothing will probably want a storefront where they can sell and showcase their goods. If you are part of the latter group, you will most likely want to lease the site where you are operating out of, especially if you are just starting out and do not have the funds to buy. In any commercial lease there are various laws and business terms that every small business owner should be familiar with. Here are some of the more important ones to pay attention to:


Cities and counties have certain rules and regulations that owners and users of real property must comply with. These rules are known as zoning regulations. For example, some zoning laws allow only residential properties in certain neighborhoods or they restrict the use of properties such as requiring buildings to be below a certain story height. Before signing a lease be sure that the usage of the property and the terms of the lease are in line with all relevant zoning laws in the area where you are operating.


A renewal clause in the lease will allow you to extend the lease or renew it for a period of time equal to the original length. This can be crucial because your business may just start humming around the end of the lease period and you do not want to have to pick up and move at that point. Thus, make sure you have a renewal clause in your lease. Often they will allow for an increase in rent equal to the costs of inflation to make sure the landlord is on happy with the clause.

Personal guarantee

Many landlords of commercial space who lease to small businesses will not rent without a personal guarantee from the business owner. This means the owner promises to pay what he owes the landlord from his personal assets if the lease is broken. This can be an extremely risky guarantee to sign, especially if your business is young and its survival is far from guaranteed.  Although it may be unavoidable you might be able to negotiate the terms of the guarantee, such as limiting it to one or two years or putting a cap on how much you would have to pay. Either way, be aware that landlords often require these and prepare accordingly.

Know your lease contracts

In sum, when small businesses decide to lease commercial space they must be familiar with the terms of many leases and the laws accompanying them. Having a good working understanding of zoning laws, renewal clauses and personal guarantees is a good place to start. To get a more informed account of what you need to know contact a local business attorney.[1]

[1] Petrus, Desiree and Warda, Mark, Start a Business in Pennsylvania 45-46 Sphinx Legal (2006) 4th edition