Before we get into the nitty-gritty of commercial leasing, let’s take a step back and think about what this process entails. Essentially, when you’re leasing a commercial space, you’re entering into an agreement with a landlord. This covers how the duration, required cost, and what kind of maintenance you’ll be responsible for.
It’s important to remember that a commercial lease is a binding legal contract. Therefore, it’s crucial to understand all of the terms before signing on the dotted line. With that being said, let’s take a look at some of the most important things you should keep in mind when negotiating a commercial lease. Let’s begin…
What is a commercial lease?
A commercial lease is a contract between a landlord and tenant for the use of a commercial property. This includes the length of the lease, the amount of rent, and any other charges. Different rights and responsibilities of both landlord and tenant are also covered. Such a lease is typically longer than residential leases. It may be for a term of years or renewable on a month-to-month basis.
When negotiating a commercial lease, it is important to understand all of the terms and conditions. A qualified attorney can help review the lease and advise on its implications. Once signed, both parties are legally bound by the terms. Breaking a commercial lease can have serious consequences. Therefore, it is important to ensure that the contract is in line with your business goals. More so, it has to have reasonable stipulations.
Factors To Consider When Leasing Commercial Property
The amount of rent you pay depends on a number of factors. This includes the size and type of property you are leasing. Its location has to be taken into consideration as well. Furthermore, the length of the lease comes to play as well. As such, it is best to look into your finances. Only then will you know if a term is feasible for how much your business is projected to make.
Tenant improvements are a significant factor in the decision-making process. These refer to the changes or additions that a tenant makes to a property. It usually comes with the landlord’s permission. Such improvements range from simple cosmetic changes to more major renovations.
These different improvements add value to a property and make it more attractive to potential tenants. In some cases, they negotiate lower lease rates. Landlords may be willing to offer reduced rates in exchange for the tenant making some updates to the property.
End of Lease/Surrender
When a tenant vacates at the end of their lease, the landlord may be required to do repairs. In some cases, he may also be responsible for re-letting costs. These expenses can add up. So, it’s important to factor in them when deciding whether or not to surrender your lease early.
If you are considering surrendering your lease, there are a few things you should keep in mind. First, check your lease agreement to see if there are any penalties for doing so. Second, make sure you give the landlord plenty of notice. This way, they have time to find a new tenant. Finally, be prepared to negotiate with the landlord regarding any expenses associated with your early departure.
Types Of Commercial Leases
Double Net Lease
This means that the tenant is responsible for paying not only their rent but also property taxes and insurance. This is a great way to save money on your expenses. Well, this is so because you won’t have to worry about these costs.
However, there are some things to consider before signing a double net lease. Make sure you understand all of the terms and conditions. More importantly, ensure that you’re comfortable with the risks involved. You’ll also want to make sure that the property is in good condition and that it meets your requirements.
Triple Net Lease
Here, the tenant agrees to pay all of the property’s operating expenses. This includes taxes, insurance, and maintenance. It is a type of lease often used for retail space, office space, or industrial space. The landlord provides only the shell of the building. The tenant, on the other hand, is responsible for everything else.
Triple net leases can be beneficial to both landlords and tenants. Such is the case because they provide a clear division of responsibilities. This arrangement can help keep operating costs down. However, triple net leases can also be risky. Why? Because if one of the tenants fails to pay their share of the expenses, the other tenants may be responsible for making up the difference.
A percentage lease involves a tenant’s agreement to pay a base rent plus a percentage of their business’s gross revenue. The percentage amount is typically between 2% and 5%. This type of lease can be advantageous for tenants. Such is the case because it allows them to only pay rent based on their income.
On the flip side, it can also be risky because the rent can be unaffordable if the business is slow. When negotiating a percentage lease, it is important to clearly define the terms of the agreement. More so, it is imperative to have a good understanding of your business’s financials. This way, you can accurately estimate costs.
In this lease, the tenant is responsible for paying all property-related expenses. This includes utilities, janitorial services, and repairs. The landlord only provides basic maintenance services. Fully-serviced leases are common in office buildings and other types of commercial properties.
It may be deemed ideal because they provide more control over how the property is managed. However, this can go a little bit tricky too. You see, this can also be more expensive than other types of leases. As always, take the time to weigh the pros and cons carefully before inking any deals.
Once you have found the perfect commercial leasing space for your business, it is time to sign a lease. However, before you do so, it is important to understand the terms of the lease agreement. This includes the length of the lease, the monthly rent amount, and any other fees associated with the property. Thankfully, you now know the intricacies after reading and understanding this article.
It is also imperative and vital to understand your rights and responsibilities. For example, you will likely be responsible for maintaining the property and paying for repairs if something goes wrong. Remember, this is not an easy feat. Leasing entails in-depth evaluation and assessment. If it makes you feel better, it is recommended to partner with an expert as you go through the process.