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How to Lease Commercial Real Estate?

Posted by Jake Cook on March 19, 2021
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If you’re not sure how to lease commercial real estate in Colorado, it can help to partner with a real estate firm with in-depth experience finding locations in the area you’re searching. Before you reach out, though, make sure to read through our basic primer on commercial property leasing so you know what to expect as you begin your search for the ideal location for your business.

Leasing Commercial Real Estate Basics

At the very basic level, a commercial lease is a legal agreement between a property owner or landlord and a tenant. While each agreement varies and should be ready carefully by both the landlord and tenant, some lease components are universal:

  • A beginning and end date for the lease: This indicates when the tenant can move in and by when they must move out if the lease is not renewed.
  • Whether the lease is renewable or not: This portion will also include a timeline for when the tenant must notify the landlord of their intention to renew the lease.
  • The cost of monthly rent paid by the tenant: Some landlords, but not all, will also include insurance and taxes in this figure.
  • The responsible party for any repairs: Sometimes this responsibility is split and, for example, the landlord may be responsible for fixing issues that cause the space to be unusable and the tenant responsible for minor issues.
  • Terms about subleasing: A sublease is when the tenant leases the property or a portion of the property to a third party. Not all leases will allow this.
  • When the tenant enters into default or the lease is otherwise canceled: These terms help you understand when the landlord may revoke the lease and force you to vacate the premises early.

If your lease doesn’t contain all of these components, you should refrain from signing it until they are explicitly listed. Handshake agreements or verbal agreements are, at best, difficult to enforce.

Commercial Lease Types

It’s important to understand what type of lease you are signing. Commercial leases are defined by the cost of rent and who pays for expenses incurred by the property, such as property taxes. In general, there are five kinds of commercial leases:

  • Full-service: The tenant pays rent, and the landlord pays for all other property expenses. This type of lease is sometimes called a gross lease.
  • Single net: The tenant pays rent and property taxes.
  • Double net: The tenant pays rent, property taxes, and insurance.
  • Triple net: The tenant pays rent, property taxes, insurance, and maintenance costs. This type of lease is common with restaurants.
  • Modified gross lease: The tenant pays rent and a lump sum that covers property taxes, insurance, and maintenance costs. A modified gross lease ensures there are no surprise costs as there can be with net leases. Also, the landlord is often responsible for utilities and janitorial services with this type of lease.
  • Percentage: The tenant pays monthly base rent and a percentage of their monthly sales from that specific property. This type of lease is common with retail spaces.

The most common type of commercial lease is the full-service agreement. A full-service lease also affords the tenants more protections than other types as the tenant is responsible for a set monthly price for occupying the space, and the landlord is responsible for all other costs and maintenance. If the landlord doesn’t hold up their end of the agreement, the tenant often has a variety of avenues to take to recoup costs and exit the lease without penalty.

How to Lease Commercial Property

Signing a lease is the last step of the process of leasing commercial property. Well, before you get to that part, you need to make sure you’re researching to find a suitable location for your business.

Research Your Needs

Preparation is the key to success in almost all ventures. With commercial property leasing, the preparation takes the form of research into knowing what your business needs to succeed. As part of your research, you should consider five key factors:

  • Access: Your business should be easily accessible to your customers and your employees. You should also think about each party’s preferred mode of transportation to determine whether you need parking facilities.
  • Budget: Most businesses will have difficulty turning a profit if their rent takes up more than 8% of their yearly gross income. Ideally, this number should be closer to 5%.
  • Population: Similar to access, you should want your business to be close to where your target customers live while still providing a short commute to your employees.
  • Size: This factor can boost or hamper employee morale, especially in office spaces, and determine how many customers you can serve at any given instance.
  • Zoning: Local governments decide what type of businesses can operate out of specific spaces. If the location isn’t zoned for your type of business, you’ll have to find a different location.

Finding a Location

Your preparation should lead you to think of an ideal type of space or location for your business. Once you’re prepared with this research, it’s time to find actual locations.
You should look at several properties before making your final decision. This helps you get a better idea as to the value of a specific space and will give you additional familiarity with the commercial market.

Once you begin to cull your list of considered properties down to only a couple, you should consider some final factors to make your ultimate decision:

  • Alterations: Does the space require additional construction to make it suitable for your needs, and who is responsible for those costs?
  • Amenities: Does the property come with amenities like free Wi-fi, on-site security, or easy access to dining options?
  • Landlord or management company: What was the experience of other tenants who have leased from the property’s landlord or management company?
  • Neighbors: Are you close to your competitors, or is there another property nearby that can help attract customers?
  • Safety: Is the neighborhood safe?

Finalizing the Lease

After the theoretical and practical research, it’s time to finalize the lease. Once the landlord or management company has prepared it, make sure to look it over and confirm any confusing or jargony language. Suppose you have leverage, such as various property options to choose from in a buyer’s market. In that case, you can try to negotiate a lower monthly rent or additional benefits for your business. However, you shouldn’t force the issue if everything is otherwise acceptable, as it can start the relationship with your landlord on a bad foot.

Unique Properties Can Help

Finding the ideal commercial property to rent for your business isn’t easy. As you can see, it’s a time-intensive and research-heavy experience. That’s why it makes sense to partner with a real estate brokerage firm with experience helping businesses of all shapes and sizes find the right Colorado property for your needs.

Unique Properties is such a brokerage firm. With over 40 years of experience, we know how to help our clients achieve their business and financial goals. Reach out to us today to see how we can help your business find the commercial property that best serves its needs.

 

Featured Image: Mark Winfrey/Shutterstock

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