Wise Strategies to Lease Commercial Real Estate
If you are of the opinion that getting some real big space for your business is one of the easiest jobs on earth, reality will bring you a different story. Well, everyone aims to save money when it comes to dealing with real estate. Therefore, a question that leaves a lot of people perplexed is “Do I need a commercial real estate broker?” Where the commercial real estate market is considered inferior to that of residential, seeking assistance from brokers in this respect often seems to be a challenge. However, the constant climatic changes in the world of real estates might fail you to take the high road, thereby maximizing your chances of losing prospective investment opportunities. A veteran broker will, therefore, help you secure the best value and mitigate possible challenges that might affect your business in the long-run.
Be Wise in Choosing a Commercial Real Estate Broker
While choosing to work with a broker, what you need to ensure that he/she is not any leasing agent representing the landlord. In other words, you need to work with a tenant broker who will be having immense knowledge in real estate dealings. In fact, he will be the best person to guide you in lease negotiations and other complications in regard to commercial properties. So after talking to a tenant broker:
- You will have to sign a representation agreement.
- With this agreement, the broker will acquire the right to show you the property.
- Also, he will be able to invest quality time in letting you find the right space.
- This agreement needs to be signed in case of renting a smaller space.
- In the case of a large space, the tenant broker will certain aim for a sizeable commission.
In small towns, it is, however, a big challenge in finding the right commercial real estate broker. People, therefore, end up looking for other brokers who hardly gains the ability to come up with proper solutions in respect to commercial real estates. In such cases, one may take help of public tax records with the intention to know about the building owners. Thereafter, they can contact the concerned person and proceed accordingly.
- Advantages of hiring a Commercial Real Estate Broker
When it comes to dealing with matters like real estate, what should concern you the most is nothing the fear factor of making bad investments. Therefore, it is always advantageous to hire a commercial real estate agent who will guide you ensuring absolute security and monetary justification. Prior to talking to a commercial real estate broker, keep the following points in mind:
- The commission they earn depends largely on the percentage of the lease. This earns them an incentive to get you the priciest space available.
- No incentives are there for commercial real estate brokers for pointing out things in regard to your lease. In such cases, negotiation is a must.
- They usually take up matters when it comes to leases of lump sums. To be precise, they simply do not pay heed to leases of minimal cost.
Where to look for commercial real estate brokers?
For not being able to find an experienced real estate broker, a lot of people look for real estate attorneys. Well, this is not always a pocket-friendly alternative. However, a smarter way is to take help of an attorney to look for a commercial real estate broker. Besides, you can talk to all those who have earlier rented commercial space and are satisfied with the results. Talking to them will rather be easier in getting the right commercial real estate broker.
Do not Skip Minute Details in a Commercial Real estate Lease
If there is any blunder you can think that may land you in dire straits, it would be signing the lease without understanding it. It is to be noted that the initial copy of a commercial real estate lease will tend to stand in favor of the landlord. So, once it comes in this form, objections or rather negotiations must be done in time, or otherwise, things will go wrong drastically. So, one must go through all the clauses thoroughly to ensure that the dealing has been completely fair between the landlord and the tenant.
Personal Guarantee is a Must
While giving a commercial property on rent, you might have to sign a personal guarantee. This indicates that if the business fails to pay rent, you will be personally responsible. Consequently, your landlord will take a serious step in checking your financial capacity to ensure that you are able to back up the lease. Therefore, prior to making commitments in regard to personal guarantee, it is advisable to measure one’s financial strength. Nowadays, landlords usually ask to maintain track records. Therefore, setting a personal guarantee of 2 to 5 years will seem to be quite negotiable in such cases.
Commercial Real Estate Fees
As far as commercial real estate fees go, they are calculated on the basis of certain factors.
- Commercial properties are quoted by either the particular year or month.
- Also what matters is per square foot based on which the valuation is determined.
- The space used for your office and the common space are different. Accordingly, the charges are different for these spaces. This is a big reason why the measurements should be done correctly prior to taking help of a commercial real estate broker.
Commercial Leases and their Types
Here are some important terms in relation to commercial leases. Let’ study to have a fair idea:
- Percentage Lease – It is calculated on a monthly percentage or yearly gross sales applicable to the premises. It usually comes blended with a base rent. It is one of the common commercial leases for retail stores that usually operate in rented spaces. Here, a base rent is paid by the tenant, irrespective of profits or losses alongside a percentage of revenue earned for doing business on the premises.
- Net Lease – Here the tenant has to pay a portion or all of the property’s maintenance costs, fees and taxes apart from the rent in addition. Requirements for net lease are usually applicable in the case of commercial real estates.
There are three primary types of net leases:
- Single (net)
- Double (net-net)
- Triple (net-net-net)
- Gross Lease – Here the landlord is required to pay the insurance, maintenance cost and all taxes related to the property. What is best about a gross lease is that it can be utilized to meet the needs of a particular tenant residing in the building. For example, a tenant can use gross lease to pay off the utility bills.
What is your lease length?
As a tenant, it would be wise of you to go for a short-term lease. What you need to ensure is you have the option to renew it once it’s over. So even if you are out of business or planning to maximize your space, you will not be left stuck with the lease. Moreover, you will not have the fear of losing space if it keeps meeting your needs consistently.
As a matter of fact, lengthier lease terms are always profitable for landlords. Remember, the longer the lease, the easier it is to negotiate in regard to other parts of the agreement. This is a big reason why commercial leases are usually longer in comparison to residential leases.
How to handle rent increases?
One of the most important duties of a landlord is to keep track of the rising costs of owned properties. This intention here will be to keep apartments rented without any complications. Landlords must always keep their tenants happy, or otherwise, there is no end to hassles while choosing a new tenant. So to avoid the rental increase, here are a few tips which you can always follow:
- Study the market thoroughly and do some good research
- Go for a multi-year lease and negotiate accordingly
- As laws vary from one state to another, make sure to know all of them applicable to your state
- Keep making small improvements in your apartment from time to time. This impresses all landlords for sure.
Who stands answerable for what expenses?
The terms and conditions of commercial properties stand in contrast to those of the residential ones. Where residential leases hold the landlord responsible for property maintenance as well as for repairing AC units and others, commercial leases are not entitled to keep such conditions. So, it’s very important to ensure who stands accountable for what type of expenses.
There might be alterations to a space at any point of time. Therefore, one must check that it has been clearly stated in the lease as to what alterations are to be made and who will be held accountable for the payment. Landlords going for long-term leases usually do not cover costs of space building. It is also to be kept in mind that if the space cannot be used by you till it is built, you will not pay the full rent applicable during that period.
- Signature matters
Being a business owner, it is very important for you to understand the right time of taking signatures for your customers. Messing up with signatures can later land you up in deep trouble.
- Sublease Clause
If you wish, you can always sublease your space. This would ensure complete protection even if you are unable to pay rent. You may even move to a larger space where this clause will be applicable.
- Exit Plan Clause
Imagine a situation when you might be compelled to break the lease prior to its closure. In such a case, keep a 2 or 3-month penalty that will keep the tenant aware of the consequences.
- Assigning lease to a new owner
In case you have plans to sell out your business, you will have to get the lease assigned to the new owner. Remember, this is not applicable for certain leases.
- Co-Tenancy Clause
You can then only consider adding a co-tenancy clause if your business is completely dependent on the foot traffic brought in by a nearby business into an area. With this clause, you can always break your lease in case the anchor tenant decides to leave. For instance, there are small shopping stores that stand accountable for a huge portion of the mall’s expenses.
- Exclusive Use Clause
Business owners whose businesses are dependent on foot traffic can always think of negotiating an Exclusive Use Clause into the contract. This would not allow the landlord to rent out space to the competitors.
- Security deposit
There is no limit to the amount of security deposit required by a commercial landlord. Whatever is fixed should be mentioned in the contract.
- Date of commencement of the lease
Prior to the date of commencement of the lease, it is very important for you to ensure that you have met all related obligations. In other words, the date of commencement will have to be different from the date of signing the lease.