By Lisa Compton-Bradley
The first step in leasing a commercial property is to choose the right space. There are a variety of commercial properties available for rent, and several things to consider when choosing your space. The right type of space and a great location can help increase business. However, the wrong space or location can potentially damage a business. Learn how to determine what type of space will make the most sense for your business.
Before looking at lease space make a checklist that details and prioritizes your needs. Things to consider include access, neighborhood, traffic counts, parking, yard area, neighboring tenants, size, ceiling height, interior buildout, to name a few. It is easy to get excited about how a space looks and overlook any potential drawbacks. Also consider if your business requires modifications to an existing space; for example, adding interior walls, floor coverings, raising a loading dock, or rewiring for electrical or internet service. And make sure that you or the landlord will be able to make any necessary changes.
Before considering a lease agreement, you should carefully investigate the length of the lease (also referred to as the term of the lease) to make sure it meets the needs of your business. If you have a relatively new business and plan to expand, a short-term lease, possibly two to three-years may work for you and is less risky. However, a business that is well established with no desire to move in the future may prefer a 5 to 20-year lease with options to renew.
Make sure the rent is within your budget, and consider the following items that are typically addressed in commercial leases:
- rent, including potential increases (also referred to as escalations)
- if the rent includes insurance, property taxes, and maintenance costs (referred a gross lease); or whether the tenant will be charged for these items (referred to a triple net lease).
- the security deposit and conditions for its return
- exactly what space is included in the lease (may include common areas such as hallways, restrooms, and elevators) and how the space is measured.
- if modifications to a space are necessary, will the landlord provide a tenant improvement allowance or make modifications to the space or will these improvements be paid by the tenant? Also consider who will own these improvements at the lease ends (typically the landlord will)
- specifications for signs
- who will maintain and repair the premises, including the heating and air conditioning systems
- if the lease may be assigned or subleased to another tenant
- potential to expand the space you are renting
- if and how the lease may be terminated, including notice requirements, and whether there are penalties for early termination, and
- how disputes must be mediated or arbitrated as an alternative to court.
In addition to zoning requirements, it is also important to consider the Americans with Disabilities Act. The Americans with Disabilities Act (ADA) requires all businesses that are open to the public or that employ more than 15 people to have premises that are accessible to disabled people. Make sure that you and your landlord are in agreement about who will pay for any needed modifications, such as adding a ramp or widening doorways or restrooms to accommodate wheelchair access.
Overall, there are several issues to consider when leasing a commercial property, and many of which have not been addressed in this short blog. Leasing commercial real estate may be a little overwhelming for someone just starting a business. A knowledgeable commercial leasing agent is not only familiar with the local market and what is available for lease, but they can also assist a tenant in understanding the lease terms and what to look for. They can also assist in negotiating a lease. A benefit to a potential tenant is that leasing commissions are typically paid by the landlord, not the tenant. Therefore, it is a wise and prudent option to seek the assistance of a commercial leasing professional when considering leasing commercial real estate. Fortunately, SVN has number of qualified agents who specialize in leasing a variety of commercial properties, including retail, office, industrial, and land (ground lease).
Lisa is a native of California and moved to Pensacola in 2002. She began her real estate career as a Certified General Commercial Real Estate Appraiser and has over 15 years of commercial appraisal experience along the Gulf Coast of Florida and Alabama. Lisa is experienced in typical investment properties, including raw land, subdivisions, apartment properties, mobile home parks; hotel, office, and restaurant, retail, and industrial properties. In addition, she is experienced in complex and special use properties, including water parks, borrow pits, and marinas. Lisa joined SVN | SouthLand Commercial with unique expertise that have assisted her in meeting the goals of her clients in both the sales and leasing of a variety of investment properties. To view Lisa’s listings, click here.