Before Signing a Lease Agreement: Guide for Contractors

Lease agreements are legally binding documents that outline your rights and obligations as a tenant. For contractors, these agreements often involve unique considerations—such as workspace requirements, equipment storage, and compliance with local regulations. Rushing through the review process or failing to understand the terms can result in:

• Unexpected costs or rent increases
• Restrictions on business operations
• Unfavorable renewal or termination clauses
• Liability for property damage or accidents

Taking the time to review your lease thoroughly protects your business and ensures the space meets your operational needs.

Spotting red flags early can save contractors from legal headaches and financial loss. Watch out for these common issues:

• Vague Maintenance Responsibilities: Ambiguity about who handles repairs or maintenance can lead to disputes and unexpected expenses.
• Hidden Fees: Look for clauses about common area maintenance (CAM) charges, utilities, or administrative fees that aren’t clearly explained.
• Restrictive Use Clauses: Ensure the lease permits all your intended business activities, including storage, fabrication, or vehicle parking.
• Unfair Termination Clauses: Beware of provisions allowing the landlord to terminate the lease with little notice or penalty.
• Personal Guarantee Requirements: Some leases require contractors to personally guarantee the lease, putting personal assets at risk.

Before signing, use this checklist to ensure your lease agreement covers all critical areas:

1. Business Use: Confirm the lease allows your specific contracting activities.
2. Rent and Payment Terms: Review rent amount, due dates, escalation clauses, and late fees.
3. Lease Duration and Renewal: Check the lease term, renewal options, and notice periods.
4. Maintenance and Repairs: Clarify who is responsible for repairs, maintenance, and improvements.
5. Insurance Requirements: Ensure you understand what insurance is required and who provides it.
6. Alterations and Improvements: Get written permission for any modifications you plan to make.
7. Subleasing and Assignment: Know if you can sublet or assign the lease if your business needs change.
8. Termination and Default: Understand the conditions for ending the lease and the consequences of default.

Contractors can take several steps to protect themselves before signing a lease agreement:

• Consult a Legal Professional: Have a lawyer or contract specialist review the lease for hidden risks.
• Negotiate Terms: Don’t hesitate to request changes that better suit your business needs.
• Use Technology: Tools like Flag Red’s AI contract risk scanner can quickly identify problematic clauses and suggest improvements.
• Document Everything: Keep written records of all communications and agreed-upon changes.

• What are the total monthly and annual costs, including all fees?
• Who is responsible for repairs, maintenance, and upgrades?
• Are there restrictions on business hours, signage, or equipment storage?
• What happens if I need to terminate the lease early?
• Can I sublet the space or assign the lease if my business changes?