To Lease Or Not To Lease: Things to Know to Get the Answers

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Here are some questions to ask before signing a lease:

1. Does the lease specifically state the square footage of the premises? The total rentable square footage of the building?

2. Is the tenant's share of expenses based on total square footage of the building or the square footage leased by the landlord? Your share may be lower if it's based on the total square footage.

3. Do the base year expenses reflect full occupancy or are they adjusted to full occupancy (i.e., base year real estate taxes on an unfinished building are lower than in subsequent years)?

4. Must the landlord provide a detailed list of expenses, prepared by a CPA, to support increases?

5. Does the lease clearly give the tenant the right to audit the landlord's books or records?

6. If use of the building is interrupted, does the lease define the remedies available to the tenant, such as rent abatement or lease cancellation?

7. If the landlord does not meet repair responsibilities, can the tenant make the repairs, after notice to the landlord, and deduct the cost from the rent?

8. Is the landlord required to obtain nondisturbance agreements from current and future lenders?

9. Does the lease clearly define how disputes will be decided?

(Source: 327 Questions to Ask Before You Sign a Lease, by B. Alan Whitson (B. Alan Whitson Co., (800) 452­4480.)

Learn The Lingo

Lease terms you should know:

Lessor: Landlord

Lessee: Tenant

Right of First Refusal: before vacant space is rented to someone else, landlord must offer it to the current tenant with the same terms that will be offered to the public.

Gross Lease: tenant pays flat monthly amount; landlord pays all operating costs, including property taxes, insurance and utilities.

Triple Net Lease: tenant pays base rent, taxes, insurance, repairs and maintenance.

Percentage Lease: base rent, operating expenses, common area maintenance, plus percentage of tenant's gross income (most common for retailers in shopping malls).

Sublet: tenant rents all or part of space to another business; tenant is still responsible for paying all costs to landlord.

Assign Lease: tenant turns lease over to another business, which assumes payments and obligations under the lease.

Anchor Tenant: major store or supermarket that attracts customers to a shopping center.

Exclusivity Provision: shopping center can't lease to another who provides the same product or service that existing tenant does.

CAM: common area maintenance charges including property taxes, security, parking lot lighting and maintenance; may not apply to anchor tenants in retail leases.

Nondisturbance Clause: tenant cannot be forced to move or sign a new lease if building or shopping center is sold or undergoes foreclosure.

Types of Business Organizations

When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. Factors influencing your decision about your business organization include:

Legal restrictions
Liabilities assumed
Type of business operation
Earnings distribution
Capital needs
Number of employees
Tax advantages or disadvantages
Length of business operation

The advantages and disadvantages of sole proprietorship, partnership and corporation are listed below.

Sole Proprietorship
This is the easiest and least costly way of starting a business. A sole proprietorship can be formed by finding a location and opening the door for business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Attorney's fees for starting the business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions.

Partnership
There are several types of partnerships. The two most common types are general and limited partnerships. A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended. Legal fees for drawing up a partnership agreement are higher than those for a sole proprietorship, but may be lower than incorporating. A partnership agreement could be helpful in solving any disputes. However, partners are responsible for the other partner's business actions, as well as their own.

A Partnership Agreement should include the following:

Type of business.
Amount of equity invested by each partner.
Division of profit or loss.
Partners compensation.
Distribution of assets on dissolution.
Duration of partnership.
Provisions for changes or dissolving the partnership.
Dispute settlement clause.
Restrictions of authority and expenditures.
Settlement in case of death or incapacitation.

Corporation
A business may incorporate without an attorney, but legal advice is highly recommended. The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership, not the total number of shareholders, control the corporation. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings. Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" or "S" corporation.