Signing a commercial lease is a crucial and monumental step when building a business. While you may have experience with residential leases, a commercial lease is different. You need to consider more factors that aren’t present in residential leases. Consider these six things before you sign a commercial lease.
1. Rent Payment Terms
While residential lease terms tend to be straightforward. Commercial leases are more complicated. There are four types of commercial lease terms that you could encounter.
Single Net Lease
The tenant pays a fixed amount of base rent. Then, any additional fees get added on. These could include janitorial services, maintenance fees, or additional taxes.
Double Net Lease
The tenant pays the base rent plus utilities, insurance premiums, and a portion of the property taxes. The landlord is responsible for the maintenance costs in the common areas.
Triple Net Lease
The tenant is responsible for the entirety of the costs of maintaining the commercial property. This includes the rent, maintenance costs, taxes, insurance, and utilities. The lease may require the tenant to pay the landlord. Then, the landlord will make payments on the tenant’s behalf.
Absolute Triple Net Lease
This type of lease is similar to a triple-net lease. The business tenant will pay the rent plus taxes, operational expenses, and utilities. However, an absolute lease is slightly different. The tenant will pay all of these expenses directly to the creditor instead of the landlord.
2. Rent Payment Liabilities
Rent liabilities in a commercial lease can be more complicated than what is owed monthly. A business could negotiate to delay rent payments at the beginning of the lease. This could allow for budgeting to renovate the space. In addition, a tenant could be liable for rent after the lease ends. The commercial lease could require the business to return the commercial space to its original condition post-lease. If this reversal extends beyond the lease ending, the tenant could be required to continue paying rent.
3. Exclusive Use Rights
A standard commercial lease term is an exclusive rights clause. It protects a business by preventing the property owner from leasing the neighboring commercial spaces to competition. This is crucial for large commercial areas like a shopping center or multi-use retail space. This clause also protects the property owner. The exclusive use clause could restrict a business. It could outline the specific activities and types of business that it can participate in. This type of clause protects the other commercial tenants.
4. Exterior Appearance
The outside common areas and the front of the building are customers’ first impressions of your business. If the property owner is responsible for this upkeep, you are putting this first impression of your business in somebody else’s hands. You want to ensure the landlord meets a standard that ensures the exterior looks presentable.
In addition, the landlord will want to ensure that commercial tenants do not make unauthorized changes to the exterior. Restrictions could include terms outlining the allowed changes to the storefront, landscaping, and signage.
5. Insurance
A commercial lease can require the tenant to purchase and maintain insurance coverage. In some situations, the landlord may hold the policy and require the tenant to pay a portion of the premiums. In other situations, the lease may require the tenant to purchase their own policy. There may also be requirements on the required minimum coverages.
Review Your Commercial Lease
If you plan to sign a commercial lease, having someone experienced to assist can be invaluable. A knowledgeable real estate attorney can review your commercial lease before you sign. They can explain the terms to ensure you know what you are agreeing to.
Schedule a consultation today and speak with one of our experienced attorneys today.
