Consider hiring lawyer to look over lease

September 20, 2015

Q: I have found space to lease for my new washateria, and the landlord has given me her standard lease contract. Should I just sign it?

A: Before you sign anything, make sure you understand and agree with all the terms of the contract.

"There is no such thing as a 'standard lease,' and landlords almost always negotiate," says Benjamin Miller, a Houston real estate attorney with Sponsel Miller Greenberg. "Don't lose sight of the fact that the 'Standard Form Lease' represents the landlord's wish list and, if not appropriately modified, may not serve your interests when issues arise."

A lease is much like any business agreement in that it sets out the parameters of a business relationship. You cannot easily break or change a commercial lease. It is a legally binding contract, and a good deal of money is usually at stake.

Hiccups in relationship

When everything goes as planned, most any lease will serve the parties well. The true test occurs when there are hiccups in the relationship. If the lease has not been drafted carefully, a hiccup can become a major problem without a clear solution.

There are, in general, three types of commercial leases. With a gross lease, the renter pays the landlord a fixed monthly rent. It is then up to the landlord to pay all the expenses of operating the building. In a triple net, or NNN, lease, the tenant not only pays base rent, but also part of the building's operating costs. These costs include property taxes, insurance and common area maintenance. Hybrid leases have features of both gross and triple net leases.

Triple net costs are shared according to the percentage of the tenant's square footage to the building's total square footage. So, Miller advises, "Pay attention to what is included in NNN costs and get the right to audit the landlord's cost records."

Maintain the areas

Common area maintenance is generally the amount of additional rent charged to the tenant to maintain the areas of the property shared by all the tenants and from which all tenants benefit. These include repairs, cleaning, janitorial and trash services, as well as personnel costs associated with the property. Most often, common area maintenance doesn't include capital improvements, tenant build-out expenses, legal fees, costs for services to other tenants, commissions to brokers, or costs arising from a landlord's negligence.

You should seriously consider having your lease contract reviewed by an experienced attorney.

How to find an attorney for your business

Q: How do I find a capable attorney for my small business?

A: Finding the right attorney for your small business can be difficult.  Many lawyers are not skilled in representing a struggling new business. Lawyers who primarily deal with consumer matters such as divorce, personal injury or consumer bankruptcy may be less skillful in business matters.  So, how do you search for and select a capable attorney?

A good place to start your search is the website of the Houston Lawyer Referral Service, www.hlrs.org. HLRS is a non-profit community service and provides free referrals. Their attorneys provide an initial 30-minute office consultation for a reduced fee of $20.

The membership directory of your local Chamber of Commerce will have information on attorneys who are members of that chamber.

Accountants work with many attorneys and are often a good source for referrals as are business insurance brokers.  

SCORE has counselors with legal background used in providing business counseling, but, they cannot represent your company on legal matters.

How do you select among the candidates?  An established attorney should have a website that provides some history of the attorney, her experience, the nature of her practice, and a list of some typical clients.  If a group practice is identified, but no specific individual, call and ask which attorneys in the firm specialize in small business practice.

Once you have identified the two or three that seem to fit, call and schedule a 15 minute interview.  Explain your purpose is to select an attorney for your new business, and that you do not expect legal advice at the meeting. Many attorneys will not charge for an introductory session.

At the meeting, briefly describe your business.  Find out what types of businesses the attorney typically represents.  Discuss services you need immediately and evaluate their response.  Ask what services you may need that you have not considered.  Find out if they charge by the hour, by the project, or on retainer, and what their fees are.  Ask if they can work within your budget?

Try to assess if you will be able to rely on the attorney when your business success or failure is at stake.  Is she generally a “problem solver”?  You want someone who works hard to find solutions to business problems.  At the same time you want an attorney who explains risks and is ready to give you advice you need, even if it is not what you want to hear.

Help with worker classification issues

Q: When I started my small business a few years ago, I paid my workers appropriately as independent contractors because I was using them on a project basis without a lot of supervision. As my business has grown, though, I’ve evolved to the point where I use them continuously under my supervision and they really should now be classified as employees. Is there any way that I can switch their classification without exposing myself to heavy IRS penalties and back taxes?

A: It’s not unusual for employers to find themselves in this situation. Fortunately, the Internal Revenue Service recently released a new program that can provide the relief you are looking for. This new IRS program is called the Voluntary Classification Settlement Program (VCSP) and is meant to encourage employers to come in compliance with respect to their worker classifications.

The program allows employers to voluntarily correct misclassification issues going forward for workers who had previously been wrongly classified as nonemployees or independent contractors. While providing protection from the possibility of an employment tax audit for prior years, it offers substantially reduced costs for reclassifying workers.  

A business owner who participates in the VCSP agrees to treat the class or classes of workers as employees for future tax periods for employment tax purposes. The employer will pay 10% of the employment tax liability that may have been due on the compensation paid to the workers, calculated at the reduced rates for the most recent year with no liability for any interest or penalties. For example, an employer who misclassified workers and paid them $100,000 in 2010 for wages below the Social Security wage base would owe only $1,068 in employment taxes, rather than $10,680, plus interest and penalties, for that year. 

Organizations considering this program should keep in mind that the IRS is in the midst of a three-year program that significantly increases the number of worker classification audits.
There are more details to the program than I can describe here. But this may be a good time to “clear the air” with the IRS with respect to employee classifications with minimal cost and exposure. Deciding who can legitimately work as a contractor and who must be given employee status has become a difficult matter for small business owners. So, consult with your CPA or tax attorney to get advice on how best to take advantage of this opportunity.

Family Businesses Meed Extra Care

The family business is an American small business tradition, one that gives parents, spouses, children, and other relatives an opportunity to contribute to and share in a dream that can grow and prosper over many generations.

But without proper planning and management, family businesses can also be the source of contention, acrimony, and even irreparable harm to once-loving relationships. That’s why it’s important for aspiring entrepreneurs to fully understand the pros and cons of going into business with relatives and in-laws. The needs of the business may not always be compatible with family harmony, resulting in a situation that if handled improperly, can jeopardize the survival of both.

When bringing family members into a business for the first time, especially as investors or in a startup situation, you should consider putting the business relationship in writing. Family members sometimes buy into the excitement of a business startup without a clear idea of their role once the business is underway.

In an ongoing family business, it’s important to treat family members fairly. While some experts advise against hiring family members, that sacrifices one of the great benefits of a family business. Countless small companies would never have survived without dedicated family members. But avoid favoritism. Pay scales, promotions, work schedules, criticism and praise should be evenhanded between family and non-family employees.

Don’t become the employer of last resort for every distant relation who calls. Base employment on the skills or knowledge they can bring to the business. If your kids will be joining the business, make them get several years of business experience elsewhere first to help them gain perspective of how the business world works outside of a family setting.

Problems and differences of opinion are common in a family business, so it’s important to keep lines of communication clear. Weekly meetings to assess progress, air differences and resolve disputes work well for many family firms.

Just as solo entrepreneurs and non-related partners need to separate their business and personal lives, owners of family businesses need to prevent work-related issues from dominating family activities. While it may be difficult to totally confine shop-talk to the workplace, make it a standing rule not to discuss work and business issues at social gatherings or at designated “family times” where the focus should be on other things.

Many SCORE counselors owned family businesses. Why not have a chat with one of them and take advantage of their experience. Visit the SCORE website, www.scorehouston.org, to learn about our counseling, mentoring and education resources.