Finding the perfect commercial real estate for lease is tedious. You spend a lot of time creating an initial space survey, touring places in person, and ultimately vetting numerous locations to ensure they meet your needs, both operationally and financially.
Before anything else, you need to decide what is a must-have and what is a nice-to-have in order to make the best lease investment for your business. Here are some examples of features you might consider needs or wants when considering a commercial lease:
Nonnegotiables
Be they square footage, prime location, or flexible contracts, these are must-haves for your business. Down the road, you may need to expand, purchase, or terminate, and a good commercial real estate lease will provide that opportunity. You may also require specific spaces or amenities depending on your business type, such as office, retail, or restaurant. You know your company best, so determining what your business needs to operate effectively is imperative in choosing the right location.
Nice-to-Haves
These are amenities that are nice though not necessarily mandatory. Examples could be outdoor space, a gym in the building, extra parking, or proximity to public transportation. Your wish list might include a building that’s green-certified or the perfect setting to physically embody your brand. Whatever they are, these are features that can make the difference when all other things are equal on multiple properties.
With your wish-list criteria in hand, you’re ready to start touring potential spaces. The site selection process can take three to six months or even longer. In most cases, it’s important to start early so you can make the right strategic moves throughout what can be an arduous commercial leasing process. That means understanding commercial lease information.
This is where the expertise of a tenant-rep broker and real estate attorney comes into play. There are table-stakes items within the lease agreement, such as understanding the expense that you as the tenant are responsible for: base rent, additional rent, security deposit, parking expenses, utilities, and maintenance. With a reputable tenant rep on your side, you’ll be prepared to negotiate with the landlord.
Finding the Right Location
Location is everything in business, and your perfect commercial lease should serve a purpose, create a presence, and have potential. Before even starting your search, understand why you’re taking on such a high expense. Only payroll outweighs rent in business expense sheets, so know your “why” for choosing the space.
Your space is a physical manifestation of the brand, and its design, location, and aesthetic should indicate this. An Apple Store may want a downtown location with a modern, open floor plan and floor-to-ceiling glass entrance. But the office for a tech company like Pinterest would be better with a hybrid office lease that can serve as a hub for its employees.
And it should have the potential to expand and encompass everything the business may need at that location. Your business may grow, and you want to support that growth while searching for commercial real estate to lease. This can be strategized through your commercial lease negotiations if you understand the clauses and terms to look for.
Common Commercial Leasing Terms
Although all leases are different, they have many commonalities in their terms and conditions. If you understand what to look for when renting space for a business, you can successfully negotiate with your landlord to start your business off on the right foot in its new location.
Here is what to look for in a commercial lease.
1. Expenses
Understanding expenses and obligations of those expenses is paramount to getting the best deal in commercial leasing. There are four basic term structures in commercial real estate for lease:
- Single-net lease — the tenant is responsible for utilities and property tax, while the landlord pays for insurance, maintenance, and repairs.
- Double-net lease — the tenant pays utilities, property tax, and insurance, with the landlord picking up the rest.
- Triple-net lease — the tenant pays for all building costs except structural repairs.
- Full-service gross lease — the tenant and landlord split all costs as “base rent.”
And it’s more than just the cost of rent; you’ll need to review all incidentals and calculate those costs to ensure they fit within your total budget. Also, review any future increases in base rent as well as incidentals.
2. Options
During lease negotiations, there are several incentives to negotiate. Pushing for a tenant improvement allowance allows you to renovate and approve a space to meet business needs and standards. In many cases, this lease incentive covers materials, labor, and other work-related fees.
Expanding or contracting the space can also be negotiated into the lease clauses to give tenants more rights in renting or returning space to fit your needs.
3. Rights
Tenants can negotiate certain rights into commercial leasing, too, like early termination rights to end the lease before expiration. You can also set the terms of renewal to ensure the tenant maintains rights to renew or not renew at their convenience. And a force majeure clause protects you from “acts of God” such as natural disasters or labor strikes. The pandemic inspired many businesses to specifically include public health emergencies in their leases.
Getting the Best Commercial Leasing Terms
Always know what you’re signing and pay attention to the fine print. It is without a doubt exciting to find the perfect space for your business, but a lease is a legally binding document. Make sure the lease serves your needs and that you’re not locking yourself into an agreement that is not financially equitable for you.
This is where leaning into the expertise of a tenant-rep broker (and real estate legal counsel) becomes crucial. With the right team guiding you down the right path, you can find the perfect commercial real estate to lease for your business.