The More Important Parts of a Commercial Lease
There are a few parts of a commercial lease that you should pay close attention to. Commercial leases are lengthy documents that can be seriously daunting to peruse, but it's important that you take the time to read all of the terms carefully before signing on the dotted line. While every part of the lease document is important, the following terms of the standard commercial lease contract are areas where you need to pay particularly close attention.
Four Important Parts of a Commercial Lease
1. Length of the Lease
The length of your lease is incredibly important for your business. A longer lease can often secure a lower monthly rent, as landlords prefer to have tenants locked into place to reduce the need to renegotiate or fill vacant spaces frequently; however, if you anticipate your business needs changing in the near future, a shorter lease may be preferable. You don't want to end up having unused square footage or having to pay costly fees to break your lease if you need to relocate. Having a sublease term can be beneficial if you do opt for a long-term lease because you will have the ability to rent out any unused portion of your space if your business changes before your lease expires.
2. Rent and Security Deposit Terms
Of course, the area that discusses how much you'll be expected to pay is an important part of your loan. Don't just look at what the monthly rental rate is. Take the time to find out if and when rent increases and what the maximum amount of the increase will be. You should also look for information about any fees you may be assessed in addition to rent, what portion of operating costs are passed along to you as the tenant and what allowances are made for improvements to the space.
Pay attention to the security deposit, too. In some cases, you can negotiate your way out of having to put any money down to secure your space if you simply provide a letter of credit from a financial institution.
3. Premises Terms
One area of a commercial lease that business owners often mistakenly overlook is the premises terms. This is the area that clearly outlines what you're renting. If you're only renting a portion of the building, make sure that the contract includes parking and use of shared areas like any common storage rooms, lobbies, waiting rooms and conference rooms.
4. Use Terms
Use terms outline rules that can be deal breakers for some companies. Check this area to find out if there are any restrictions on what types of business you can conduct. Other tenants in the building may have exclusive clauses in their contract that prevent competitors from being located in the building. These terms could make it impossible for you to expand into other lines of business in the future. In this section of the lease, you'll also find information about what type of signage and advertising you're allowed to use on the premises.
Keep in mind that the first draft of your lease is likely to have terms that are most favorable for the landlord, but you do not have to simply agree. Landlords expect a negotiation to take place, so don't be afraid to make a case for improving the terms to bring the contract into a better balance to benefit the both of you.
Investing In Commercial Real Estate?
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at email@example.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE