Leasing a commercial property might be just what your business needs to grow. But finding the right location is only part of the process. The other important step you need to take involves closely analyzing the lease you’re being offered.
If you aren’t taking advantage of the opportunity to negotiate your lease, you might be signing on to something that could end up doing more harm than good. That’s why we’ve compiled a list of five tips for leasing commercial property.
1. Know the Different Types of Commercial Leases
There are a few different types of commercial leases, so figuring out which one you’re signing up for is the first step.
- Gross rent lease – Also known as a full service lease, this is one in which you’d pay a specified amount that includes rent and incidentals. Usually, this type of lease would include the cost of your base rent, along with things like property tax, maintenance, insurance, common area costs, repairs, and utilities.
With this type of lease, it’s easy to calculate exactly how much you’ll owe each month and each year. There shouldn’t be any hidden or unexpected costs.
Note:your landlord might only offer what’s known as a modified gross lease, which would require that you cover some of the incidentals. But because this is paid at a fixed price, you do get the benefit of avoiding unexpected increases in the rate.
- Net lease – With a net lease, you’re responsible for covering the cost of some incidentals. You might be able to get a lower price on your rent, but you’ll need to factor in the expenses that you’ll have to pay on your own. There are different types of net leases, too.
For example, with a typical net lease, you might have to cover the base rent, along with one incidental, such as utilities, insurance, or property taxes. Your landlord will take care of everything else.
On the other hand, with a double net lease, you might pay rent, along with insurance and property taxes, while a triple net lease might have you covering the rent, along with utilities, building insurance, property taxes, and maintenance costs.
2. Check for Additional Costs
Carefully look through your lease for any additional costs that would fall on your shoulders. Then, negotiate with the landlord to make the lease work in your favor.
You might, for example, want to pay a higher base rent if it means you won’t have to cover variable monthly expenses. Or, you might negotiate a cap on the amount that you’d be required to spend on additional costs.
3. Check the Length, Renewal, and Termination Conditions
Your lease should include information on its length, and on renewal and termination conditions.
- Shorter term leases are a good idea if you aren’t totally sure if the location is right, or if you’re concerned about the cost of rent going up too much. These also give you more freedom to switch to a location that offers lower rent if things change in the future.
- Ask for a renewal option, and renegotiate your lease if you do decide to renew it. Perhaps the landlord might be willing to reduce your costs, or at least agree to a cap on increasing your rent.
- When it comes to termination, there are a lot of questions to answer. In the event that you want to terminate your lease, what steps will you need to take, and can you terminate the lease early? Under what circumstances will your landlord be able to kick you out? Will you be protected if the landlord sells the property while you’re still renting?
4. Ask a Commercial Real Estate Lawyer to Review the Lease
Reviewing a commercial lease on your own can be daunting, overwhelming, and confusing. By enlisting the help of a lawyer who specializes in commercial real estate and leases, you can rest assured that a professional will have your back.
The right lawyer can point out problems within the lease’s terms, as well as answer your questions and help you negotiate better terms.
5. Evaluate the Cost vs. the Value of Leasing
It’s worth comparing the cost of your lease with the value you’re getting out of it. Is it really worth your while to lease a commercial property, or would it be better to invest in a commercial property that you can own? The answer to this question depends on a variety of factors.
Although it might be pricier upfront, there are perks that come with owning commercial real estate. For example, you’ll be able to claim depreciation on tax returns, possibly sell it at a profit in the future, and rent part of it to other businesses to generate extra income.
Leasing Commercial Property? Don’t Be Afraid to Ask for Help
The bottom line is this: as with any other type of lease, carefully reading through the contract and knowing exactly what you’re getting yourself into is the key. And, because this is something that can help make or break your business, it’s best to work with professionals who can guide you in the right direction if you have any concerns.