Commercial leases are lengthy and complex, and often contain terms that the average person is unfamiliar with. If you’re considering a commercial building lease, here is a list of key things that you should always keep an eye out for before signing.
Lease Length
The length of your lease is one of the most important aspects to consider. You’ll want to make sure that it’s long enough to cover your needs, but not so long that you’re locked into a contract you can’t get out of. This can be challenging for new businesses with little data to project growth. In these cases, it may be best to start with a shorter lease and then renew for a longer term once you have a better idea of your needs.
Renewal Options
Most commercial leases will have renewal options, which allow you to extend the length of your lease if you so choose. It’s important to understand how these work, as they can be a great way to lock in a good rate for a longer period of time. However, they can also be used as a way for the landlord to increase your rent after a certain number of years so you’ll want to give careful consideration to the terms and negotiate anything that seems unreasonable.
Base Rent
The base rent is the starting point for all negotiations and will be one of the most important numbers in your lease. Make sure you understand how it’s calculated and what, if any, increases are built into the lease. You’ll also want to find out if there are any discounts or incentives that could lower your rent.
Lease Type
There are primarily three types of commercial leases:
- Gross Lease: In this type of lease, the tenant pays a monthly amount that covers both rent and operating expenses such as utilities, janitorial services, and parking lot maintenance.
- Net Lease: A net lease typically means that the tenant pays just the base rent, plus any additional costs such as property taxes and insurance.
- Modified Gross Lease: A modified gross lease is somewhere in between the two, with the tenant paying a base rent plus a portion of the operating expenses.
Be sure that you fully understand the type of lease you are considering to avoid any surprise expenses. You’ll also want to make sure that utilities for your building or space are independently metered to avoid sharing a portion of another business’s utility expenses. Don’t hesitate to question anything that seems like it could be problematic in the future.
Signing a commercial lease is a big step for any business. By taking the time to understand the key terms and negotiating anything that doesn’t seem fair, you can be sure that you’re getting the best deal possible.
Meghan Belnap is a freelance writer who enjoys spending time with her family. She loves being outdoors and researching new topics that help to expand her horizons. You can often find her buried in a good book or out looking for an adventure. You can connect with her on Facebook right here and Twitter right here.
