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A Quick-Start Guide: The Commercial Leasing Process

Updated: May 26

Whether your business is brand new or well established, you may be feeling like it’s time to get yourself a commercial space. So today I’m offering a quick start guide to commercial leasing.




Understand Key Lease Terms

While it’s always good to connect with your realtor, it’s helpful to know some of the terms they might reference as they work with you on your commercial lease.


Zoning

This term references how space can be used. For example, leisure, retail, restaurant, commercial, or industrial spaces are all types of zoning.


The way your property is zoned can impact how you’re permitted to use the space. And rezoning can often be a time and money investment if the current zoning doesn’t match your goals.


Accessibility

Depending on the space and its use, there may be accessibility requirements for your space. These are often the landlord’s responsibility. But as a business owner, you’ll want to know if the landlord is complying with accessibility requirements in your town.


Anchor Tenants

Does your commercial space have a well-known or well-trafficked business in it? These are the businesses that drive traffic to your space naturally and some people rent in a particular location because of them. Knowing if your location has an anchor tenant and when or if they may leave can help you decide if this space is right for you. Anchor tenants aren’t a “plus” for all businesses, so be sure to connect with your realtor about how they may impact your work.

Full-Service Lease

This is an all-inclusive style lease: The landlord pays key expenses like property taxes, repairs, insurance, maintenance, cleaning, and utilities.


Modified Gross Lease

This lease type is a bit of a compromise. You won’t have everything covered like you do in a full-service lease but you’ll be able to pay those things that aren't’ naturally included as lump sum monthly with your typical rent. This means that you might pay your portion of the maintenance or insurance costs but you can pay them when you pay your lease each month.


Net Lease

Net leases are not all-inclusive and sometimes a landlord will include things known as “usual costs” (like property taxes, maintenance, and some insurances).


These leases tend to look less expensive as far as the base payment but there are things that are covered in a full-service lease that are now your responsibility and are paid separately.


Rent and Escalation Clause

This is a term in a lease that determines if, when, and how your rent will go up.


Use Clause

This is the part of your lease that defines how space can and will be used by a tenant.


Lease Build-Out Credit Clause

Sometimes a tenant will be given these credits to make modifications to space at the landlord’s expense. So it’s important to know if your lease includes these, how they work, and what they cover.


Rent Abatement

Damage happens. From storm damage to water heater breaks to wind damage and beyond. Rent abatement takes into account a clause in your contract that defines when a renter will not have to pay or will pay less until such damage is fixed.






Know Your Goals For The Space

Leasing commercial space is a commitment that has financial implications for your business. So it’s important to get clear about what you want to do in the space, how you want to use it, and what you need to say “Yes” to a LEASE. So, take some time to connect with your team, or to brainstorm your own ideas if you’re a solo entrepreneur.


Get clear on your ideal building type, neighborhood, and amenities. Also, get at least some vision of a floor plan that might work best. You can always discuss this with your realtor or interior designer later, but it will help you to see a space and know instinctively whether it foots the bill.


Work With Your Numbers People To Clarify a Budget

Once you identify your “must-have” features for your space, it’s time to connect with your financial professionals (accountants, planners, CFOs, and others) to define your budget.


Working with these people will give you a clear picture of how much space you can afford. Again, you can always connect with your realtor about such things. But your numbers people have insight into your business and its growth that can help make these decisions as well.


Location, Location, Location (and Parking...)

It’s the tried and true real estate adage: Location, Location, Location.

And it’s just as true in commercial real estate. So, don’t skip the chance to explore the area, zoning laws, environmental regulations, parking regulations, walkability, traffic, and nuisance ordinances.

You may also want to drive by a potential space during the times you’d be going to work, the times your clients or customers might visit the space, and at night to see the overall security of the space in the evening.

Knowing that your space has parking for team members, customers, clients, and visitors is essential and understanding whether the area is the right fit for your brand and business goals is vital as well.


Finally, ask your realtor about doing a walkthrough of the space with them and with a licensed contractor. With these two experts by your side, you’ll be able to make important decisions about whether space is up to code, well maintained, and right for you.


Know Each Space’s Amenities

Just like you would with a home you may purchase, it’s essential to understand what’s included or available for your use when you lease a space.


It’s also good to know who else leases in the building so you can decide if adjacent businesses align or if your neighbors are actually competing for businesses to your own.


Getting clear on whether you’ll be responsible for maintenance, whether you can hang signage, what utilities or insurances come standard, and whether you can pay each month in a standard lump sum or will need to allocate such resources individually can all help you to decide if the building is the right one for you.


Get a Sense For The Landlord

As you get closer to finding the perfect space, it’s going to be important to get a sense of the person you’ll be collaborating with as you run your business in their building.

One easy way to get this insight is to see how the potential landlord handles (or refuses) negotiations about lease terms. If they’re refusing simple requests, getting uncomfortably confrontational, or giving you the sense that they’ll be hard to work with, trust your gut and connect with your realtor to discuss what that might mean for space.


Go Over Your Lease Terms With a Professional

Once you’ve found a space, it’s vital to go over the lease term with your real estate agent and lawyer.


Explore things like insurance, property taxes, maintenance costs, security deposits, termination clauses, modification permissions, expansion permissions, and subleasing terms.

These are keys to your lease because they identify your responsibilities and clarify those of the landlord. They also govern how you can use the space and adapt it to your needs.


Next Steps

Once you’ve gotten clear on these things you may be ready to sign your commercial lease. But if you’re not quite sure where to start or you know you don’t want to navigate this process alone. Contact me here and we’ll connect. I’d love to help you find your business’s new home.


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