Finding the best commercial property to lease for you business can be challenging. Before you commit to a commercial lease, educate yourself on how they differ from residential leases and understand the clauses that impact your business.
Finding the best commercial property to lease for you business can be challenging. The success of your business may depend on specific terms of your lease. Before you commit to a commercial lease you should educate yourself on how they differ from residential leases and understand the various clauses that can impact your business.
Main Differences Between Commercial and Residential Leases
Before you begin it’s important to learn the primary difference between residential and commercial leases, as they are very different legally.
Binding and Long Term
Before signing everything be sure you understand everything within your commercial lease because you cannot easily break or amend it. With significant money on the line, it’s important you can work with the duration and terms presented.
No Standard Form
Unlike residential leases, commercial leases have no standard agreement or form, instead they are based on the landlords needs. Again, it is important to understand every term to the lease before signing.
Less Protection Laws
Most of the consumer protection laws that apply to residential leases do not apply to commercial leases. For example, there are no privacy protection law or security deposit caps.
More Flexible and Negotiable
Because businesses need special features in their property, commercial leases leave more room for negotiation and flexibility to suit your business’s needs. Landlords are also more eager to fill the space than a residential landlord, and will likely be more open to negotiating for special offerings. Use this leverage to your advantage.
Determine if Your Business’s Needs are Met with the Space
Because the properties layout and structure play a vital role in how your business will function, be sure to consider if the space will meet your business’s needs. Determine if any modifications will need made, will cubicles need added, or public restrooms required and accessible, will the wiring meet your technical needs? If not, you must negotiate with the landlord on what changes are allowed to be made and who is responsible for what.
You’ll also need to analyze the rent and rate and lease duration. Is the rent sustainable for your revenue stream? You’ll be safer agreeing to shorter term leases in case your business outgrows the space, or from the other side, in case it cannot sustain itself.
There are other terms you’ll need to consider based on the type of business you have. If you depend largely on foot traffic are you able to add prominent signage to the space, or if you depend on exclusivity, can your landlord offer to avoid renting to other competitive businesses in the space. These nuances will vary on your business so be sure to think them through and bring them to the negotiations.
Lease Term Checklist
You’ll want to review lease terms with a lawyer for guidance. As you review the lease be sure to keep the following terms in mind:
- Rent rates - When reviewing the rate terms be sure to check on escalations or allowable increases and how they are calculated. You’ll also need to review what the rent includes like property taxes, insurance, and maintenance costs. If it is included this is termed a gross lease, if not it is a net lease.
- Duration of Lease - The length of your lease or lease term, will outline when it exactly begins and if there are renewal options. Renewal options can also address whether or not you can expand the space you are renting
- Determining the exact space being rented - You’ll need to clarify which exact areas you are renting and if they include any common areas like restrooms, elevators, or hallways.
- Modifications - Specify what, if any, modifications, or build outs, will be made to the space, who will pay for them, and who will own them after the lease ends.
- The Americans with Disabilities Act - All businesses that employ more than 15 people or are open to the public that require that the premises that are accessible to disabled people under The Americans with Disabilities Act (ADA) . Determine who will pay for any required modifications, such as widening doorways or adding a ramp to accommodate wheelchairs.
- Security Deposit - Determine the amount and conditions for its return.
- Signage - Are there any specification to the size or placement of signage?
- Subleasing- Determine whether you are able to sublease or assign your lease to another tenant.
- Termination - There are several variables to understand for termination of the lease: including penalties for early termination and notice requirements.
- Disputes - Review whether disputes can be mediated as an alternative to going to court.
If you educate yourself and pay close attention to these terms in your lease before signing, you will be more prepared to address any issues that may come up.