Answers to 5 Common Commercial Lease Questions
Signing a lease can be the game-changing move that propels your business forward. Whether opening a new retail store, moving into an office space, or renting out a production facility, securing the appropriate space is crucial for success.
If you're new to commercial leasing, it's normal to have questions about the process. We’re answering 5 common questions about the commercial lease to get you started.
How is a typical commercial lease structured?
As a business owner, it is crucial to recognize the different types of commercial leases available. While the landlord typically selects the lease structure, you need to comprehend the implications of each for both parties. There are three primary methods for structuring a commercial lease. Understanding these types can help you negotiate a lease that best suits your business needs.
Triple Net (NNN): the tenant is responsible for paying additional costs beyond the rent, such as property taxes, insurance, and maintenance
Modified Gross (MG): the landlord pays for some, but not all, of the additional costs beyond the rent, such as property taxes and insurance
Full-Service (FS): the landlord pays for all additional costs beyond the rent, including property taxes, insurance, maintenance, and utilities
How long is a typical commercial lease?
Commercial leases can vary in duration, typically from three to ten years. The exact length of the lease can depend on several factors, such as the type of business you have, the property owner's goals for the property, and whether you are requesting any additional benefits such as free rent. Depending on these factors, property owners may offer lease terms that are shorter or longer than the typical range.
What other costs should I expect when leasing commercial space?
When you decide to rent a property, know that your base monthly rent may not be the only expense to budget for. There can be up to 99 points of economic impact in a commercial lease.
For example, you may be required to provide a security deposit to ensure that any damages to the property are covered. Depending on the lease structure, you may also be responsible for additional expenses such as common area maintenance costs, which are the costs associated with maintaining shared spaces like hallways or elevators. You may also be responsible for paying a portion of the property taxes and building insurance, which can be especially important to consider when renting a commercial space. Knowing these potential expenses when budgeting for your rental property can help you plan accordingly and avoid financial surprises.
Can the terms be negotiated?
In the world of commercial leasing, all terms of a lease are negotiable. As a business owner, strive to obtain a lease that is favorable to your business interests. Landlords typically provide lease agreements to prospective tenants that tend to skew in their favor. Therefore, it is in your best interest to read the entire lease agreement, understand its contents, and request amendments that are advantageous to you as the tenant.
It is surprising to note that a considerable number of business owners do not review the lease terms thoroughly, which can result in unanticipated expenses that could negatively impact their business. It is crucial to have a thorough understanding of the lease terms to prevent any unfavorable impacts on the operation of your business.
Do I need a real estate agent to lease commercial space?
It's important to acknowledge your strengths and weaknesses as a business owner and know when it's time to delegate tasks to others. Negotiating a lease for your business is a task that we recommend entrusting to a reliable commercial broker.
In today's digital age, searching for commercial property listings on websites such as LoopNet and Zillow has become all too easy. However, it's important to remember that commercial transactions can be complex. Trusted brokers have a wealth of knowledge about commercial investing, including information not publicly available. They possess critical skills such as comparable sales data analysis, investment analysis, and underwriting expertise. Their expertise can help you find the best properties and negotiate more favorable lease terms. Therefore, it is worth considering their services to ensure you get the best deal possible.
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