Top Commercial Space Lease and Rentals
Renting or leasing commercial office space is a large commitment. Read about how to rent or lease top commercial spaces and get the most from your lease.
Renting or leasing a commercial office space is a large commitment. The process involves significant due diligence and a thorough inspection of your lease agreement. Commercial leases are different from residential leases in multiple ways and their terms are often integral to the success of your company. Examining those terms with your attorney or legal team is critical to understanding the differences between legally sound clauses and favorable phrases for your business. Read ahead for important information about renting or leasing a top commercial space and how to make the most of your lease agreement today.
Differences Between Commercial and Residential Leases
Two significant differences between commercial and residential leases involve protection clauses and purpose/function. The purpose and function of a residential lease is to create a legally binding agreement between a landlord and tenant(s) purely for the purposes of establishing a living arrangement. The living arrangement involves the tenant(s) paying money to the landlord on a monthly basis for a predetermined amount of time in exchange for a home/residence. Commercial or profit-based activities are generally not permitted within the residence. With commercially-leased property, however, the primary purpose/function is the establishment of a money-making business within the leased space.
The second main difference between commercial and residential leases involve the inclusion/omission of certain protection clauses for the lessee. Residential leases typically protect tenants from unethical landlord activities, whereas commercial leases often do not. Residential leases generally involve a businessperson (landlord) contracting a non-businessperson or persons (tenant or tenants) into a legally binding agreement. Commercial leases lack lessee-protective clauses because the tenants entering them are already businesspeople with a knowledge of business ethics and contract legalities.
What to Look for When Looking for the Right Commercial Space
Looking for the right commercial space requires due diligence, focus and a knowledge of what your business needs to succeed. Understand your priorities and place them in order on a detailed checklist. For example, how important is location to the success of your business? What opportunities for growth does the space provide? Do you need parking, et cetera? Follow your instincts and trust your first impressions when viewing the space. Understand the security strengths and weaknesses of the building/location prior to signing a lease. Look for flaws in the physical structural integrity. Research crime in the immediate surrounding areas and extended neighborhood.
The type of business you own also affects what to look for in a commercial space. Is your business an office, retail store or an industrial organization? Offices and retail businesses require quality aesthetics and enough space to comfortably house staff, customers and clients. Look for competition in the vicinity of your business and understand how market division in favor of your company will be impacted based on competing businesses in your area. In addition to enough space, industrial-based businesses need a building location with convenient access to major roadways. Hire trusted help, including building inspectors and a legal team to contribute to your assessments. Finally, make certain to thoroughly examine your lease.
Examining Your Lease
Leases for commercial spaces are typically weighted in favor of landlords. Rent is charged based on the square footage of the space but also location and anticipated revenue potential. Little protection is provided by U.S. government institutions for commercial lease tenants. Commercial tenants are presumed to be equally capable of managing business agreements as the landlords.
Terms, conditions and clauses not violating any laws do not automatically make good business terms for you/your company. Commercial leases are also harder to exit prematurely than residential leases. Before signing the lease be certain all terms are acceptable and the rent charges are within your budget, leaving room for financial emergencies in the future.
Finding the Right Space in 2021 - Who Can Help?
Commercial real estate brokers are able to help you locate the right commercial space for your business in 2021. Conducting internet searches helps you not only locate available space but also the top commercial real estate brokers today. Website services such as Commercial RealEstate Direct and LoopNet.com are designed specifically to help with these exact queries. Consult and network with friendly local business owners who are connected with brokers and/or building owners. Finally, employ self-initiative and drive around searching for newly available spaces perfectly located for your business.
The Leasing Process
Leasing a commercial space is a complicated process unique to each business. Categorizing similar steps for all commercial leasing processes is still possible, however. The process of leasing a commercial space includes the following steps:
Review your business and assess its needs.
Get legal and peer advice.
Compare options instead of settling.
Obtain necessary licenses and permits.
Examine your lease carefully.
Negotiate terms in your favor to the best of your ability.
Commercial Space/Real Estate - Average Costs
Lease types are drafted based on the type of business involved. While many commercial leases are based on the square footage of the property, other factors also apply to the cost of rent. Rent is commonly based on square footage because spaces are also commonly divided or combined for use by additional businesses.
A simple calculation places a 5,000 square foot building rented at $30/sq. foot under lease for $150,000/yr. Divided by twelve the monthly rent equates to $12,500. Terms and conditions can quickly become more complicated, however. Usable Square Footage (USF) and Rentable Square Footage (RSF) apply to calculations. Some commercial leases are percentage, percentage over base or percentage of gross receipts leases. In such leases the landlord takes a percentage of business profits addition to rent. A few primary commercial lease types include:
Triple Net (NNN).
Full Service Gross (FSG).
Modified Gross (MG).
Permit and Document Requirements
A business license is required when renting or leasing a commercial space. License and permit requirements are different in each state and for different types of businesses. Permits are obtained as one of two primary types. Subject To Field Inspection (STFI) permits, also referred to as over-the-counter permits, are obtainable in one day if conditions are viable. A full building permit takes between five and nine months to obtain and involves multiple organizations, processes and inspections. Some of the many requirement factors involved in qualifying for an STFI permit include changes (or not) to project/occupancy types, egress conditions, building structure and your commercial space occupying 4,500 square foot or less.