Legal Tips for Opening a Brick and Mortar
A Brick and Mortar shop is the classic way to start a business. For some types of business (i.e. retail bakery, restaurant, art shop) it is the popular and most profitable form of getting your product to your customers. A lot of entrepreneurs have dreams of their brick and mortar, but all too often jump into it before doing the appropriate planning. It is always best to meet with an attorney to legally protect yourself. While a lot of people think they can go it alone instead of having to pay an attorney, remember that paying to consult with an attorney is a drop in the bucket compared to dealing with a lawsuit that lasts several years. Here are some legal tips to help you plan before throwing the doors open:
1. Lease Agreement.
After you find that perfect spot, it's time to negotiate the lease agreement. When you sit down to discuss the lease, make sure you have already walked through the space several times and have an understanding of the work you need to do before you're able to throw the doors open. Will the space need a complete build-out, or just minor renovation? Landlords typically will provide a credit to a tenant for building out the space, as well as a delay in the monthly rent obligation based on how long it will take you to do the build-out. But remember this. . .
If it isn't recorded in writing, it's probably not enforceable
Sure, people enter into "oral" agreements all the time. However, even oral agreements require proof of the agreement. If you have a signed lease agreement that is pretty detailed and yet silent about the build-out, the presumption is that there was no additional agreements outside the lease unless you have something in writing to state otherwise. The best way to be clear on the agreement is to get it in writing in the lease. If your landlord is providing you a build-out credit up front or as a deduction in your monthly lease amount over time, this should be clearly spelled out in the lease agreement. If your rent will be delayed based on you opening the doors for business, this also needs to be clearly identified. Take into consideration that all build-outs always take longer than you think and you should allow for some wiggle room in the lease agreement. For example, if your contractor tells you the build-out will take 2 months, it's probably better to put into the lease that your rent will start when you get your occupancy permit instead of "two months from this date". This ensures that you won't be on the hook for a lease payment without money coming in UNTIL you open.
Before signing a lease agreement you should have an attorney help you review it. The typical commercial lease is pretty daunting with a lot of confusing language and small print. Most people gloss over it and sign because they feel they need to in order to get a space they are really excited about. But your savvy landlord is really used to negotiating. You need to understand your rights and make sure you're getting a deal that is good for your business. This means having an understanding of your obligations versus your landlord's obligations under the lease. Who is responsible for the utilities, for garbage pick-up and routine maintenance on the furnace? What type of insurance are you responsible to get under the lease? Most importantly, what is the date you need to give notice if you are not renewing? Most commercial lease agreements spell out all these things and it's very important that you have an understanding about them BEFORE you sign on the dotted line.
2. Building Out the Space
It is so exciting to build out a space! It can also be pretty frustrating----it always takes longer than you think it will and often, there's challenges to deal with along the way. This is why it's important to do your research when choosing contractors, have a very good understanding of the contracts and to monitor the progress of the work. You will likely hire a general contractor to do the work and allow that general contractor to retain the subcontractors. Subcontractors include trades such as painters, electricians, HVAC, flooring, plumbers, etc. Don't forget that this is YOUR project. You have an important say in the work----how it's done and by whom. Moreover, it is very important that you understand the contractual relationship and the insurance issues. This comes from an attorney who for the majority of her career practiced insurance defense dealing with these issues. If one of the subcontractors is injured while working, who is responsible? If you hired on the cheap without checking these issues, you may find yourself in a situation that could have been prevented with a little more diligence. Review all subcontracts and make sure to collect all the insurance information BEFORE the work begins. Most importantly, make sure that you have a detailed conversation with your own insurance agent and that you obtain the proper insurance policies before the work begins. Your insurance agent should advise you that your business needs to be added as an additional insured onto all insurance policies of your general contractor and subcontractors, an act that will protect your business if there's an accident or property damage during the construction. Be diligent with this step.
While it's important to check the progress of the work and ensure that the project is progressing according to your specifications, you shouldn't tell the subcontractors how to do their jobs or provide daily instruction, unless you are acting as the general contractor. If you step into the role of a general contractor and there's an accident, then you also assume the responsibility of a general contractor. Rather, have regular meetings with your general contractor and allow him to instruct the subs accordingly. This will prevent any job site role confusion. For further information on your legal responsibilities during a build-out, talk to an attorney.
When you open your business to the public, you have to follow the laws of the city and county in which your business sits before people are allowed into your business. In order to throw those doors open, you need to have your premises inspected before you obtain the occupancy permit that allows you to open. If you're working with an architect or a general contractor, they should be able to help you with this. Typical inspections include the building inspection, the fire inspection and the health inspection. When you pass inspection you will be granted an occupancy permit that allows you to open your business to the public and will also inform you how many people can safely be in your business at one time. You will also be granted a business license that allows you to legally operate your business. It is the job of your architect and contractor to help you with what is necessary to pass inspection. Having a good understanding of your contracts at the beginning of the project will ensure that everything goes smoothly with inspection at the end and that there is no significant delay in getting open.
4. Vendor Agreements
Most of the time you can't just throw the doors open without having vendor relationships. The type of vendors you need will depend on the type of business you have. If you have a food business you will likely have several types of food suppliers, various service professionals ranging from an apron/towel supplier to a grease trap service and dry goods supplier. If you have a shop you will have relationships with your suppliers and shippers. You will need a POS system, internet service, phone system, security, a banker, and even someone to change out your mats. It's important to understand the agreements you will sign for your business and how to sign them.
Before you looked at a space, you set up your business legally under your state laws and you signed your lease agreement in your business name. All of your business agreements should be signed by you as the owner of your business, not by you personally.
These are a few legal tips to help those of you considering opening a leased premises. There are many other considerations so I suggest you do some research on the exact type of business you are looking to open and what laws may be applicable. It's always wise to be proactive with a good lawyer on your team to advise you accordingly. For more information on our services for businesses, visit www.adamslaw.attorney.