Commercial Property Leases Made Easy

Commercial property leases involve a lot of steps and can be complex. They include negotiating lease terms such as pricing, length of term, who pays for operating costs, and what the space will be used for. It also involves running realistic financial projections based on current revenue. This can help you determine whether your business is financially prepared to enter into a commercial property lease.

Signing a Lease

A lease is the foundation for a commercial property rental. It sets out the terms of the agreement between the landlord and tenant, including who pays for the rent, if there are pet restrictions and other important details. The lease should be prepared and filed for by a real estate broker or attorney who can ensure that the document meets local regulations. Landlords may also wish to include additional language in the lease regarding the condition of the premises and any other stipulations they would like the tenant to adhere to.

There are many nuances in a standard commercial real estate lease, so it is important for both parties to fully read the document before signing. The landlord should provide a copy to the tenant, as well as any co-signers or guarantors. If anyone has questions or concerns, it is best to address them in the presence of a leasing agent or manager.

It is also a good idea to ask about any other stipulations that might be unique to the property. For example, a tenant might be required to pay a fee for a walk-through inspection or a check-in appointment. Some building owners may prefer that tenants not rearrange the space without permission, so it is important to make this clear. Others might require that the occupants carry their own insurance. These stipulations are often detailed in a letter of intent, which is sometimes included in the lease itself.

One thing to keep in mind is that there are usually less legal protections for commercial property tenants than those renting residential properties. This is because commercial tenants are often considered to be more familiar with running a business and may have more knowledge of what it takes to manage a property successfully.

Once both parties have agreed upon all the terms of the lease, it is time to sign. Most landlords will allow the tenants to sign in person, but some will offer an online electronic signing platform that allows co-signers or guarantors to submit their signatures remotely. This can be a great solution for situations where the guarantor does not live in town or is unable to attend a face-to-face meeting.

Negotiating a Lease

Once you’ve found a space and successfully completed your commercial rental application, you should receive real estate lease forms from the landlord. These documents will give you the details of your contract, and there are several elements to consider before signing on the dotted line. A few key issues to work out include the length of the lease, security deposits, and the ability to sublet the space.

In addition to the standard rent, many commercial leases include extra fees such as insurance, utilities, and maintenance costs. Find out what these fees are and negotiate as much of them away as possible. For example, try to get a dollar amount cap on these fees or a clause that allows you to transfer the lease to another business owner should you need to close or move.

An element to be negotiated is a damage deposit. The amount required varies by industry but can range from one month’s rent to three months' rent, or even more. You also need to know how the landlord will assess the damage, make repairs and return any deposit money at the end of your tenancy. There are usually state laws governing where the deposit will be held and how long you have to return it, so read these carefully.

You’ll want to determine how much time you will have to open your business and modify the space, bring in inventory if you are a retailer, and obtain furniture, among other things. Negotiate as much of this time as you can to avoid having to move in at the last minute.

You’ll also need to decide whether you will be in a gross or net lease. The landlord pays all operating expenses in a gross lease, but in a net lease, the tenant is responsible for some or all of these costs. These include building insurance, property taxes, and maintenance fees. Ask your broker to explain the differences between gross and net leases so you can be prepared for what you will need to pay.

Renting a Space

Whether you're ready to expand your company's operations, or your team is outgrowing the space in which it operates, it's important to find a commercial property that meets your needs. A commercial lease is a form of contract between a landlord, or property owner, and a business tenant that outlines the terms and conditions under which the company will use the property for a set period of time. Commercial leases are different from residential ones in several ways and, as a result, have a lot more components that must be carefully considered before signing.

The type of lease you choose to sign is one of the most crucial decisions you'll make as a business owner. The term length of the lease can impact your negotiating leverage. Shorter terms are more restrictive, while longer terms provide you with the peace of mind that comes with knowing your rental agreement will be renewed at a reasonable rate.

There are also a number of fees and charges that must be paid in addition to rent. For instance, a net lease requires you to pay base rent along with certain fees associated with operating the building and maintaining the property. These are known as CAM or Common Area Maintenance fees, and include things like real estate taxes, insurance, janitorial services, and utilities.

Other possible additional costs include a security deposit, which is usually equal to one month's rent. Some landlords may request a larger deposit than that, depending on the industry and property. You should always read a lease carefully to ensure that any damage deposits are clearly specified.

Many commercial leases use escalation formulas to increase your rental rate over the course of the contract. These formulas typically link your rental to an index or measure of inflation. This can be a problem because these indexes don't take into account the cost of running a commercial space, so your rental rate could increase far faster than the overall inflation rate.

One way your rental rate can change is if you agree to a percentage lease. In this arrangement, your rental is based on a percentage of the profits of your business and you can earn bonus payments if your company does well. It's crucial to understand these types of arrangements before you sign a lease, and hiring a contract attorney can help ensure that your best interests are protected.

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Managing a Lease

When you rent a commercial property, you and your tenant will need to understand exactly what’s included in the lease and how long it’ll last. This will help you avoid surprises and unexpected costs. You’ll also need to be prepared for what happens if either party breaks the contract. Many leases include language describing how any issues will be resolved and what damages will be charged.

Once the lease is signed and filed, you’ll need to meet with the tenant to sign a move-in checklist and collect a security deposit. During this meeting, you should also clarify what will be considered normal wear and tear and what will not. This will help prevent disputes when the tenant moves out of the space.

Depending on the industry, you may need to require a damage deposit in addition to the rental rate. The amount is typically the equivalent of one month’s rent. The landlord should also include in the lease how the deposit will be handled, including whether it can be used to pay for any repairs beyond normal wear and tear. The landlord should also state how long the tenant has to assess any damage and make repairs or return any remaining deposit money at the end of the tenancy.

You’ll also want to include a section that states how utilities will be split and whether you allow subletting of the space. If you permit subletting, you’ll need to state who is responsible for the utilities and when the tenant must give notice to guests. The section should also include if the landlord is required to obtain any permits for alterations or improvements made to the space.

Managing a lease requires careful attention to detail and help from your broker. It’s a complex document that covers a number of business and legal issues, so it’s important to understand every part of it. A broker can help you navigate the process and avoid common mistakes that could cost you in the long run. They can also help you find the right property for your needs and negotiate a fair price.