Let's focus on leasing a commercial space: Do’s and Don’ts

Clauses such as an NNN or a gross lease? It can be complex, confusing, and stressful. And based on each market, you’ll feel as if landlords hold all the cards, and sometimes, based on current conditions, a tenant may have additional leverage. The reality is landlords are focused on maximizing profits, while you want the most for as little financial outlay as possible. While respecting that both sides are simply looking out for their best interests, if you're thinking about leasing a commercial space, here are areas I’ve researched to keep top of mind:

Which type of lease is this?

Commercial leases come in various types, typically determined by the landlord. It's crucial to understand them before committing. Examples include triple net (NNN), full service (FS), and modified gross (MG). Each has unique implications and conditions for both tenant and landlord. For instance, an FS lease covers all expenses, while NNN requires the tenant to chip in for property taxes, insurance, and maintenance.

Does your lease agreement have the basic critical terms?

Of course, a verbal and written agreement are two different things, notably when you're looking into commercial properties. Any verbal assurance that a property representative says or implies must be a part of the written lease agreement. A lease should always include rent amount, due date, and the period of the lease offered. Usually, you’ll get these, but the real critical factors are in the lease's fine print.

Always know upfront your cancellation clauses

Check out what conditions your prospective landlord sets for breaking your lease. You never want to enter into a lease with the intention of breaking it, but business conditions and factors can change. It's essential to have a safety net with an exit clause. Just as the landlord protects their interests, you've got to look out for yourself too. The exit clause might involve conditions for subletting or a specific fee. Ensure you're okay with the terms laid out. Have a chat with a lawyer/expert to figure out the best approach for negotiating a “lease break clause” that fits both your business needs and lifestyle.

Engage a commercial real estate broker

As a leader/owner, it's important to recognize your strengths and weaknesses. Knowing when to hand off certain tasks is part of sound business judgment. When it comes to finding and negotiating a lease, it's a job best left to a trusted commercial real estate broker. Unless you're willing to be a self-taught expert (and admit it, it's not that easy), I recommend engaging a broker. A reputable broker can guide you to more favorable properties and secure better terms for you as their client.

Are you adding inclusions to your lease agreement?

It's crucial to finalize any agreement thoroughly. Leave no room for after-the-fact negotiation, and ensure that all potential future scenarios are addressed in the lease. Given the importance that your lease space adds to the success of your business, it's essential to include additional provisions such as insurance requirements, operating hours, and any sublet clause. Look out for “demolition clauses” – they're oftentimes hidden provisions in commercial leases that can end up costing you big time for major renovations like fixing the roof or parking lot. It's best to steer clear of these clauses whenever possible.

Remember, it's a Negotiation

Negotiation is all about finding a middle ground. Aim for a compromise where both parties can be satisfied. If your potential landlord is being unreasonable and unwilling to meet halfway, it might be time to consider walking away. Don't feel pressured to accept additional benefits that your landlord might try to slip into the agreement if those terms could potentially harm your business. Your business's well-being should always be the top priority.

Talk to your potential neighbors BEFORE signing the lease

Examples of mismatched neighbors are endless, and they can seriously impact your business's success. Before you commit to a lease, it's crucial to have a chat with your potential neighbors. Find out about any issues regarding things like crime, foot traffic, and any feedback on what it's like dealing with property management. Your neighbors can often provide invaluable insights that you won't find in any lease agreement.

Understand any Common Area Maintenance Fees

There is an increasing clause in leases called common maintenance fees that every tenant in the property is expected to financially share. These fees can sometimes be large, so be aware of them upfront. Your lease agreement should outline how these common area maintenance fees are calculated and who's responsible for covering them when they arise. These extra maintenance costs heavily favor the landlord. Make sure to negotiate this aspect out of your lease agreement if at all possible. It's a clause that doesn't work in your favor, and you don't want to be stuck footing the bill for someone else's vacancy or repair. And if you do sign, know that there will be hidden charges and constant tenant-landlord battles in the future.

Make sure everything “adds up”

Tenants often trust brokers and landlords, signing agreements without additional inspection. Be a bit of a skeptic. Confirm all calculations and ensure they align with the terms. If discrepancies arise, address and negotiate them. Always scrutinize agreements to protect your interests.

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If it's not right, walk away

Never underestimate the final contract signing. Remember, there's always more real estate. Don't be afraid to walk away if you feel your landlord is being unreasonable or the terms don't fit your needs.

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