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How to Lease Commercial Property

May

31

Post by
bill
Comment:0

 

Leasing a commercial space is one of the first steps in starting a new business or expanding an existing business.  while leasing commercial space seems straightforward, there are several complicated aspects of the process that can become complicated.  With that said, we have broken the process down into these major steps. 

 

Step 1: Assess your business

When you are looking to lease commercial space, it is important to understand what you need out of the space to help your business develop.  There are several questions that go into determining where you should locate your business and how much space you need to take the next step for your business.  however, the main questions are:

  • What type of space should I lease?
  • Office, Retail, Industrial, Land???
  • How much space do I need?
  • Where should I locate my business?
  • What is my budget?

Answering these questions will come as you truly breakdown your business practice.  While some businesses rely on high traffic volume, other businesses depend on empty streets to conduct their operation.  There are several factors that go into assessing your business.  

 

Step 2: Search for properties that meet your needs and budget.

Unfortunately, searching for commercial space is not an easy task.  With residential, there are thousands of 3 bedroom houses with two bathrooms.  But with commercial, there are fewer options that meet your needs.  At the same time, certain properties and characteristics will have a waiting list of companies and individuals before they start marketing the property.  For example, if your business requires a loading dock, a drive in door and only 5,000 square feet of space, then you will have a line of people waiting to jump on that same space the day it is listed.  This is why it is very important to constantly search online and print advertisements for new listings that may fit your needs.  Unfortunately, the commercial real estate world markets property sporadically and unpredictably.  While some agents advertise all their listings on as many websites as possible, other agents only advertise on their personal websites.  So it is important to know where to look for commercial space to rent.  Given the fact that you already have a full time job and business to run, it makes sense to hire a tenant representative (commercial real estate agent) that understands your needs and searches for you. 

 

Step 3: Set up Showings

            Once you or your agent have identified potential properties, it is time to call the listing agent or landlord to set up showings.  In residential, seller’s agent or landlord representatives do not always go to showings with the prospective tenant or buyer.  However, in commercial, it is more common for the representative of the landlord to be present at the showing.  This is helpful for the tenant, because you have an opportunity to walk the property and ask the expert the questions you need to feel comfortable making a decision on the space.  When setting up showings, we suggest not seeing more than 3 spaces at a time.
 

Step 4: Negotiate the Letter of Intent (LOI) or Lease Proposal

Prior to drafting a lease, the landlord and tenant should negotiate the major details in a letter of intent agreement.  These main details include, lease term, lease type, lease amount, build out details, tenant improvement allowance, and commencement date.  It does not make sense to have a lease drafted before these details are negotiated.  Several of the details on an LOI are straightforward; but some of the details are purposefully misleading and can result in unforeseen expenses.  Understanding the market is crucial to negotiating fair terms in the letter of intent.  if you or your agent understands who has more leverage based off of the vacancy for a given property, then you may be able to negotiate more favorable lease terms.  Letter of Intent agreements can be binding, so it is important that you understand the details of the agreement and have your attorney review the agreement before you execute.

 

Step 5: Executing a Lease

Once a letter of intent is executed, the landlord or its representatives will draft a lease that highlights and expands on the letter of intent.  The LOI may seem like an unnecessary step when you have to negotiate similar details in the lease, but it is important to highlight the major aspects of the lease in the LOI before both sides incur attorney fees while negotiating the lease.  It is always recommended to hire a real estate attorney to review your lease prior to executing.  Leases can be very straightforward, and they can be very complicated.  It is important to get the support you need upfront in order to avoid expenses down the road.  In order to fully execute a lease, the tenant will often have to deliver a check with a security deposit and or first months rent.  These terms are all negotiable but the security deposit binds the contract.