Signing a commercial lease is a considerable investment and a big commitment. Also, remember that the location or building you choose will influence the comfort, convenience, and success of your business. For this reason, every potential tenant should thoroughly evaluate the details to ensure that everything, including the agreement’s terms, is transparent. Here are five primary components you should consider before signing a lease for a business rental property.
1. Location
The location of the commercial property can boost or break your business. This is because it determines foot traffic and the visibility, safety, and accessibility of your business. For this reason, entrepreneurs should evaluate it thoroughly before signing on the dotted line.
The building should be in a commercial zone and close to other businesses. It should also have visible signs that potential customers and other brands can easily identify and access. This means that the space should be near residential buildings.
Before signing the commercial lease, it is crucial to ask whether the building has adequate security and parking for potential customers, whether the traffic patterns in the areas are convenient, and whether the area has loading and unloading issues. All these factors will affect the number of customers coming to your business. To acquire more accurate information, you should consider speaking with current tenants.
It is also vital to contact the local government to understand the developments that are likely to happen in the region and its environment. Knowing about such changes is important because they might affect your company and clientele positively or negatively.
A significant component of understanding the area is knowing the zoning laws. Running your business without complying with these regulations can cost you money and expose you to major legal issues. To avoid such issues, visit the local council and ask what they accept in the commercial precinct you intend to rent.
2. Internet Connectivity and Coverage
The digital transformation that the business landscape has experienced in the last few decades has made internet connectivity a necessity rather than a luxury. For this reason, business owners should determine a commercial property’s connectivity before signing the lease.
Remember that good coverage goes beyond WI-FI. Therefore, you should talk to the property owner about the distributed antennae system networks that can maximize the property’s coverage at relatively low rates. Today, commercial buildings with in-building wireless connectivity have high occupancy rates because of the convenience and tenant satisfaction that they offer.
3. The Property’s Repair and Upkeep
A commercial property owner is indeed responsible for repairing any damage and maintaining the building. However, entrepreneurs should understand that the quality of the building in question may affect their businesses in the future.
For example, a poorly constructed building is likely to develop mold and unpleasant odors that will affect the health and performance of your employees. Additionally, you will incur high energy bills if the building has poor lighting and major HVAC issues.
Your business will also suffer if the property has major structural problems like a roof leak. Most roofing materials can last for up to 20 years. However, they will start leaking or become weaker without proper care.
Therefore, you should pay attention to the condition of the commercial space before renting it. Always remember to ask about essential elements like energy efficiency and regular upkeep. You can also request a professional to check everything in the commercial space before signing the lease.
Potential tenants should also ensure that they understand their repair obligations outlined in the lease. In cases where the commercial space is in excellent condition, the property owners require tenants to put it back in the same condition they took it in. This includes getting rid of any alterations and additional renovations.
Acquiring this information will help you get advice on how to modify your repairing obligations. For instance, you can take photographs that will prove the condition of the space at the beginning of the lease. All the parties involved will also use this information to determine the number of repairs that you should conduct at the end of the lease. Taking these steps will help you save your money and your business.
4. Financial Commitment
You should look at the numbers before signing a lease for a commercial property. This information helps entrepreneurs to determine whether the SBA loans they are applying for will adequately cover the startup costs for their businesses. We always advise entrepreneurs to consult about their lines of credit to determine the amount of money they should spend on a commercial lease.
Rent is one of the important factors that potential tenants consider. The rental rate structure usually depends on the property and other factors like the location. The rate of a commercial lease is usually in dollars per rentable square foot (RSF) annually. However, this includes amenities like corridors, exterior walkways, common lobbies, and restrooms. This means that the RSF will likely exceed the usable square footage (USF) by about 10% or 20%.Understanding these rates will help you determine the number of rentable square feet you need to rent for your business.
The rent rate includes various components, such as tax returns, common area maintenance (CAM) fees, janitorial, and insurance. As a potential tenant, you should know everything at this rate since some people in the property industry use the term CAM to refer to all the expenses the tenant has to pay.
A triple net lease (NNN) is another critical financial component that entrepreneurs should consider before signing a lease. This agreement requires tenants to incur the net amount of building insurance, real estate taxes, and common area maintenance.
Entrepreneurs should also know about the annual rent review clause that allows commercial property owners to increase or decrease the rent rate yearly. They base this decision on the consumer price index or a fixed percentage. The former indicates the inflation rate. In most cases, the rate for an annual rent increase is between 2% and 5%.
If you feel that this rate is a considerable expense for you, you can negotiate it with the landlord or property owner before you sign the lease. You should also consider looking for an escalation clause to protect yourself against fluctuating conditions. The unpredictability of the cost of owning a commercial property today has increased the popularity of escalation clauses.
This document is more important if you plan to rent a new building that might take years to reach full capacity. This is because, in such a case, the owner lacks a stable history of operating costs that they can use as a reasonable base. The detail might seem minor, but it can cause a major dispute during the lease.
Besides the monthly rent, you should also pay attention to other financial factors like security deposit and maintenance costs. For instance, most landlords pass property taxes, landscaping, and insurance premiums to the tenants. Try to negotiate these expenses before you commit yourself to the lease.
A security deposit demonstrates that you have genuine interest in the commercial property. You must pay it before signing the commercial lease agreement to ensure that the tenant does not lease out the property during negotiation. Since American law does not cover deposits for commercial properties, you should thoroughly discuss it with the landlord before signing anything. Ensure that you know the amount and understand its refund policy.
If you cannot afford the money, consider applying for business credit at our company. We provide entrepreneurs with a financing plan that suits their business needs. For example, we offer non-dilutive capital and merchant cash advance to enable you to establish and grow your business.
Renting a commercial real estate property is a considerable investment that may affect your finances. In such a case, we can organize factoring invoices to boost your cash flow and business’ financial stability during the commercial lease.
5. The Landlord/ Property Owner
Most commercial leases are multi-year. For this reason, you should check whether you and your landlord are a good match. You should also ensure that they are in a position to serve your needs in relation to the real estate property.
One critical thing to do is investigate the landlord’s financial position. This factor is important because the landlord’s failure may jeopardize your business. For instance, if he or she files bankruptcy or default on the mortgage during the lease, you may lack the ability to continue running your business on the property.
Another question you should ask yourself before signing a commercial lease is how responsive the landlord is in solving issues. For example, does he facilitate regular property maintenance? Does the vacant commercial space look and smell good?
In summary, considering the above factors before signing a commercial real estate lease will help you make an informed decision. Renting a retail space without keeping these provisions in mind may put your business at risk and cause you to pay unnecessary fees.
