For the purposes of renting a property, a contractual agreement that exists between a business and landlord is a commercial lease. There are certain rights within the structured lease that is applicable to the landlord and also that apply to the business that rents the property. Businesses that rent a property are required to have less capital than if they were to buy a property outright. A commercial lease is more involved than one that is drawn up for non-commercial/residential leases.
Residential leases are less negotiable, while commercial leases may vary according to the terms that apply to each party, that is their rights and responsibilities outlined within the agreement.
It may seem obvious, but it is extremely important that the renter is certain that the terms of the commercial lease will not interfere with the business’s purpose.
Cost to Rent
The square footage of a building the business is interested in renting will determine the amount of rent the landlord will require. The landlord’s calculation of square footage may or may not include specific areas of the building. For instance, are elevators, staircases, attics, and porches calculated as part of the square footage? How much of the square footage is actually feasible as usable space for the business? Other costs may or may not be calculated into the monthly rent. The landlord may be willing to negotiate with the renter regarding property taxes, insurance, repairs and utilities.
Commercial lease agreements will usually account for annual rental increases. The percentage-based increase may be negotiated for a leveling off or cap. This will assist the renter in avoiding exorbitant costs down the road that the business may not be able to support.
Like residential leases, the terms of a security deposit are outlined in a commercial lease agreement. The terms will state the amount of the security deposit, the conditions by which it can be returned, and when.
Extended Terms
Commercial lease agreements are usually long term, as opposed to residential leases. However, some businesses, particularly start-ups, may find a longer lease agreement daunting. The landlord may opt for a short-term lease, with an option to renew the lease. This option may cause the landlord to raise the rent.
Legal
There are fewer legal protections associated with a commercial lease agreement, since consumer laws, designed to protect residential agreements, don’t apply. The renter is responsible for paying the rent and a portion of the taxes, along with other fees, such as insurance and maintenance fees.
Negotiability
The terms of a commercial lease are often negotiable between the landlord and the business that is renting, allowing each to come to a workable and satisfying agreement. Medical build-outs, for instance, have unique needs that require some allowances by the landlord or leasing company. The healthcare agency has several choices. Some choose to move into the rental property as it is, without any other responsibility to the landlord for adapting the space, etc.
That’s one choice, but the agency may also choose to have a custom build-out or partial renovation before moving in to set up the business. Keep in mind that a custom build-out will take more time. Plan for a delayed opening.
Starting from ground zero/square one is a viable option, though constructing the build-out from scratch may be more costly. The advantage of starting from scratch is that the space can be built to your exact specifications.
Whichever option is chosen, it is important to plan ahead, with the grand opening in mind. Build setbacks into the plan, by allowing extra time for completion of projects.
