Commercial Property Leases - what you need to know | Business Support

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Commercial Leases

The three rules of real estate also apply to choosing a physical location for your business – location, location, location.
Purchasing an existing structure or parcel of land to build on can be extremely expensive for a decent retail location, often out of reach for the new business owner.
For this reason, most retail locations are available to rent through a commercial agent.
However, before you enter into any legally binding agreement with the landowner, be sure that you understand the terms of that lease.
Your business success or failure could be riding on it.
Commercial leases differ from residential leases in several important ways.
The first would be the fact that they are more negotiable, depending on the demand for commercial space in your area.
You should negotiate the length of your lease and aim for a one to two year lease with an option to renew for an additional time to lock in what might be a prime location.
This will give you the flexibility of changing your location if conditions aren’t the best for your business, and offer a safety net if your business closes. Another item that you can negotiate is the rent itself.


Try to avoid any clauses that allow the landlord to increase the price every year (escalations). If the clause is not negotiable, see if you can cap the amount by which it increases or if you can prevent an increase for the first year. Absolutely negotiate the terms of the net lease, in which you, the business owner, can be responsible for all utilities, repairs, taxes, and insurance on the place.
Make sure that each item is clearly defined. It is likely that you can come to a compromise on a net lease whereby the landlord assumes responsibility for some items.
Commercial leases are very binding often with a great deal of money at stake should you choose to break the contract. It is important that you are sure that this location is the best for your business and that you can afford it.
The lease payment is usually the largest single recurring expense that a business will have, and is due every month whether or not you have seen any profit. Before you decide to go ahead with the agreement, understand what will happen if it is broken by either party. If you leave early, you may be responsible for the rent for the remainder of the contract even if the landlord re-rents the space.
See if you can attach a clause that will allow you to sub-lease the space yourself, in order to finance the fulfillment of your contract.
You may need to make modifications, or build-outs, to the space to suit your store’s needs. If you are opening a clothing store you may need to add changing rooms. You may need to add a delivery bay to the back if you have a store that sells TVs.
Whichever the case may be, know what you will need to do and have a contractor prepare an estimate for you before agreeing to a lease. The landlord has the right to approve or refuse any such modifications. See if the landlord will be willing to reduce the rent for the first few months or participate in the cost of the improvements.
They will be benefiting from your efforts and will own them when you leave.
Make sure that the details of the space and exactly what you are renting are clearly spelled out.
Remember the episode of Cheers where the restaurant owner above the bar realized that the bathrooms weren’t part of Sam’s lease? These details are extremely important, especially when sharing a building with other businesses.
Find out if you have access to the back of the building for parking or deliveries.
It may be owned by someone else whom you need to make arrangements with. Find out how much of the parking area is for you and your customers.

Written by Alun Hill MCIJ, Editor · Filed Under Retail 

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