If you’re a landlord or property manager facing federal office space cuts, or simply to lease out some commercial space, you’re in for a world of paperwork and legal mumbo-jumbo.
While the process may seem complicated at first, it’s important to understand all the ins and outs of commercial leasing so that you can make the most informed decisions for your business.
In this blog post, we’ll break down the basics of commercial leasing, from start to finish. Read on for more information!
Commercial Lease Terms You Should Know
When leasing commercial property, there are a few key terms you should be familiar with:
Gross lease
In a gross lease, the tenant pays a set monthly amount that covers rent, property taxes, insurance, and common area maintenance (CAM). The landlord is responsible for covering all building operating expenses.
Net lease
In a net lease, the tenant pays rent plus one or more of the following: CAM charges, property taxes, and insurance. If the tenant pays all three, the lease is known as a triple net (NNN) lease.
Triple net lease
In a triple net lease, the tenant pays rent plus CAM charges, property taxes, insurance, and any other operating expenses related to the property. The landlord is not responsible for the costs of maintaining the common areas or paying any other operating expenses since they are passed through to the tenants.
Percentage lease
In a percentage lease, the base rent is lower than it would be under a gross or net lease agreement. However, the tenant also agrees to pay a percentage of their gross income from the property to the landlord in addition to CAM charges, property taxes, and insurance.
Types of Commercial Tenants
Not all commercial tenants are created equal. When it comes to leasing your commercial space, you’ll want to consider the following types of tenants:
- Retail businesses: These include businesses like restaurants, cafes, boutiques, etc. that generate foot traffic. Often times, these businesses will have shorter leases than other types of businesses since they’re more likely to go out of business or move locations frequently.
- Office space tenants: These include companies that use office space for administrative purposes or to house their employees. These leases are often longer than retail leases since, generally speaking, companies are less likely to move or go out of business than retail businesses.
- Industrial tenants: These include companies that use warehouse space for manufacturing or storage purposes. These leases are often even longer than office leases since industrial spaces are more expensive and difficult for tenants to find than office or retail spaces.
What Tenants Look for in a Commercial Space
When considering leasing commercial space, tenants will look at several factors including location, price, square footage, layout/design of the space, parking availability, and more. As a landlord or property manager, it’s important to be aware of what potential tenants are looking for so that you can market your space accordingly.
Size and use restrictions
One of the first things that tenants need to investigate when looking for commercial space is what size and type of space is allowed in the area where they want to lease. There may be zoning restrictions that limit the size or type of business that can be conducted in a particular area, so it’s important to be aware of these before showing space to prospective tenants.
Location
The location of the commercial space is also important to consider. Tenants will want to think about things like foot traffic, access to public transportation, and whether the area is likely to experience future growth. All of these factors can impact their business (and yours), so it’s important for a tenant to choose a location that makes sense for their specific needs.
Rent
Of course, one of the most important factors to consider when leasing commercial space is rent. You’ll need to negotiate a rent price that is fair for both you and the tenant. It’s also important to ensure the tenant is aware of any additional costs associated with the lease, such as common area maintenance (CAM) charges or property taxes.
Lease length
Another important factor to consider is lease length. Most commercial leases are for a term of 3-5 years, but it’s important to negotiate a lease length that makes sense for your business and the tenant’s. If the prospective tenant isn’t sure how long they’ll need the space, of if the tenant hasn’t been in business for long, you may want to consider a shorter lease term.
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