When searching for commercial lease space there many things
to take into consideration such as, just to name a few, expenses, the lease
term, parking and permitted uses and restrictions.
The total monthly cost of the lease is usually the primary concern
for tenants and is determined by the type of lease you agree to. There are two main types of leases – gross
leases and triple net leases. Under a gross lease the tenant pays a set amount
specified in the lease agreement while the landlord pays for all of the
operating costs. Under a triple net
lease the tenant pays the set amount specified in the lease agreement plus its
pro rata share of the operating expenses, which may include repair costs,
insurance premiums, taxes, and utilities. It is important for the tenant to determine up
front what the anticipated expenses will be and understand that expenses could
increase for various reasons such as maintenance issues or increases in taxes
or utility rates. There are also ‘hybrid’
leases that combine elements of the gross and triple net lease.
Many commercial leases will contain a personal guaranty,
which means that the individuals signing the lease are also agreeing to be
personally liable for all amounts due under the lease agreement. Even though your business entity is the
tenant, you will be personally responsible for the rent as well. Some landlords may negotiate with prospective
tenants if they can show a good rental history or are willing to put up
collateral.
Most commercial lease space will need to be altered in some
way to meet your needs, or in other words, the space will need to be
“finished-out.” The cost of finish-out
may be paid by the landlord, may be the tenant’s sole responsibility, or the
landlord may provide the tenant with a budget, and any extras will be charged
to the tenant. It is also important to
determine whether the landlord requires that you use certain contractors for
finish-out.
Other concerns will depend on the type of business you
intend to operate. Prospective tenants
need to ensure there are no restrictions against operating their type of
business, and they may want to ask the landlord for a restriction against other
businesses similar to yours in the future to prevent competition from moving in
next door. You may need reserved parking
or a sign; prospective tenants should determine in advance what they will need
to operate their business and ensure the landlord will address these issues.
While commercial leases can be long and confusing, it is
important to read and fully understand the lease agreement to ensure the space
will meet your business needs and to prevent problems for years to come.
Prepared by Eric Rupe. Edited by Sarah Berry,
Attorney
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