10 Tips You Need to Know for Your Commercial Lease in 2020
Market trends change. Sometimes it’s a landlord favored market and other times the market is in favor of the tenant. The landlord is always seeking the highest profits while the tenant is also trying to reduce costs. Sometimes if the market trend is pointing towards becoming a landlord, business owners don’t have the kind of capital to bid into the market. As a result, their only option is to fall back to becoming a tenant. In that case, it’s important to know Sonenreich & Co’s investment tips for getting a commercial lease.
1. Make sure the lease agreement has essential terms.
Verbal and written agreements are two different things, especially when you are looking into commercial properties for lease. The property representative will tell you as many benefits as they can. Those verbal assurances must be a part of the written deal. Further, a lease should always contain the basic agreements like rent amount, rent due date and the period of the lease offered. The essential terms are key. The meat is in the fine print.
2. Condition your breakaway cost using a lease agreement.
See what stipulations your future landlord has on breaking your lease. You should never go into a lease with the plan to break it, however, things happen. Protect yourself with an out clause. You need to cover your back as ownership will certainly cover theirs. Sometimes the out clause can be in the way of subletting, sometimes it is a set fee. Make sure you are comfortable with the terms provided. Talk to your attorney about the best way you can negotiate a lease break clause that works for your business and lifestyle.
3. Engage a commercial real estate broker.
Being a business owner means you know your strengths and weaknesses. It also means you know when to delegate tasks elsewhere. Finding a negotiating a lease is a task you should delegate to a trusted broker. A broker spends their days learning and navigating the real estate market. Unless you do the same, have a broker handle your real estate. The factor of mistrust often causes people to look for a commercial real estate property on their own; however, it’s a well-known fact that good brokers will land their clients in more favorable properties with better terms. It’s good to find a commercial real estate broker when seeking your next commercial lease.
4. Include additional provisions in your commercial lease.
An agreement should always be completed in its entirety. There should be nothing left for later negotiation and all the future situations must be covered when negotiating your commercial lease. The success of your business lies in the lease. Make sure you include further provisions like insurance requirements, hours of operation and a sublet clause. Beware of demolition clauses. There are provisions in commercial leases that require the tenant to pay for significant renovations such as the roof or the parking lot. Try to avoid these provisions at all costs. Know the final total of your lease so you have a complete understanding of what you’re getting into.
5. Always negotiate for the removal of unfavorable terms.
Negotiating is about seeking common ground. Negotiate your lease terms with the general understanding of meeting in the middle. If your potential landlord is being unreasonable, walk away. Never believe that your landlord is entitled to additional benefits that they have inserted into your agreement if, in reality, those terms might jeopardize your business in some manner.
6. Learn from your future neighbors and avoid competition.
Commercial leases are complicated! Imagine opening and gym and with no radius clause, then the landlord lets your next-door neighbor open a gym. This is a huge issue! Or even worse. A children’s day-care facility next to an adult toy store. The messy combinations are endless. Before signing on the dotted line, talk to your neighbors. Ask about crime in the neighborhood and what you can expect from ownership. Your neighbors will tell you everything you need to know!
7. Find out if there are any common maintenance fees.
Some areas charge common maintenance fees which apply to everyone tenanting the property. Therefore it’s important to know about those hidden costs. The lease agreement should involve the procedure that shows how that common area maintenance is computed and who is going to pay those costs once incurred. Suppose if you sublease the property then the common maintenance fees charged on the area must be divided. If the property has vacancy landlords tend to add common area maintenance costs to the tenants. Negotiate this out of your lease as it only favors the landlord.
8. Calculate everything before you sign your lease.
Sometimes tenants believe their brokers and the other party, thus they sign the agreement without being much skeptical. Hence, you must calculate everything and make sure that every calculation reconciles with the mentioned terms and conditions. If you find any discrepancies, negotiate.
9. Understand different types of commercial leases.
There are different types of commercial leases. The landlord will generally choose the type of lease, but educate yourself first. A few different examples of different lease types are triple net (NNN), Full Service (FS), or Modified Gross (MG). All have different ramifications to both you and your landlord.
10. Don’t be afraid to walk.
You never know what your landlord wants or needs. There is always more real estate. Don’t be afraid to walk if you feel your landlord is being unreasonable.