Commercial Lease: What should you consider before signing?
Leases are legally binding agreements typically negotiated by representatives of the tenant and landlords, like Momentum. Leases ensure that tenants pay rent for a certain amount of time, dictate other conditions of the space, and any alterations to the space that the landlord or tenant will complete.
Making sure a commercial lease works for you and your business is essential. When looking at commercial spaces for your business, your Momentum real estate experts consider the following:
Lease Lengths
The length of a lease depends on a lot of factors, including the property itself, the size of the business, and the length of time the business has been open.
Month-to-Month – uncommon for commercial properties
Fixed End Date - having a fixed end date on leases gives both parties certainty of when the lease and its terms will end.
Automatic Renewal - After a pre-determined time, leases renew on their own, unless the tenant or landlord gives advanced notice to the other party.
Renewal options can include:
Fixed end date leases are commonly used for commercial real estate. Often, leases fall somewhere in between month-to-month and fixed end dates. At the end of a fixed period, the tenant can decide whether to extend their lease at already negotiated terms, or not. Leases like these offer both flexibility and predictability for both the tenants and landlords, making them a popular option.
What is Dictated in a Lease?
Every commercial lease is different! Some include all expenses to operate, while others include only rent.
Gross Leases
In full-service gross leases, all operating costs are included in the rent. These costs may include property taxes, maintenance, utilities, janitorial, and more. The landlord will typically charge a higher rent to offset the costs to the tenant.
Full-service leases are often used in office spaces (high-rise or multi-tenant) when utilities and common areas are all shared.
Dismissing individual operating costs can be especially beneficial as it reduces the variables in a tenant’s occupancy expenses.
Allowing for much more negotiation of operation expenses, what sets modified gross leases apart is the lease rate will stay fixed, even as operation costs change.
Modified gross leases, typically used for garden offices or office condos, can be a great middle-ground for landlords and tenants.
Net Leases
In net leases, the tenant pays a base rent, plus additional expenses. These additional expenses may include utilities, property and building maintenance and services, insurance, and more.
Triple Net (NNN)
One of the most common commercial lease types, triple net leases (NNN) includes property taxes, insurance, and common area maintenance. The tenant pays for these services on top of their base rent, which is typically slightly lower due to the other costs associated with the lease. In the case of needed repairs or other issues, tenants cover the cost.
NNN leases are favorable to landlords, especially investors who wish to maintain a hands-off management approach.
Get a Professional’s Opinion
Terms and conditions defined in a commercial lease can play an influential role in future business profitability. Hidden costs or legal restraints can negatively affect the success of a business and stunt expansion down the line. As a potential tenant or business owner, it is essential to understand what your commercial lease entails.
Seeking professional guidance is an effective way to ensure you're making the best investment possible for your business. Momentum’s agents work alongside tenants to understand business objectives, identify, and structure the best real estate solution for their business. From the first planning session throughout the management of the project, Momentum provides clients with valuable and consistent guidance when opening a new location.
