While commercial property owners desire the best tenants, tenants want to find the best commercial property that meets their needs and requirements for their business.
This guide helps tenants understand how the leasing process works and what they should expect as business owners.
It gives information you may not know, including a checklist and tips for leasing a commercial property.
What is a Commercial Lease?
A commercial lease is a legally binding contract between a landlord and a business tenant to operate a business from that property. Commercial lease agreements are used to rent any business-related property, including:
- Retail stores, shopping malls, etc.
- Medical centers, medical clinics, nursing homes, etc.
- Restaurants, cafes
- Bakeries, groceries
- Office buildings
You can learn more about commercial leases here.READ
How to Lease Commercial Real Estate
Whether renting an office, retail space, or healthcare service, you should know the necessary steps to identify, negotiate, and sign a commercial lease.
Step 1 – Set your parameters.
Before starting your search for commercial space, it’s important to determine your specific requirements and limitations for the space you’re looking for. This might include factors:
- The size of the space you need: Choose a space that fits the needs of your business. You may need enough space and storage to conduct your business operations. For example, restaurants and offices are different companies that need different usable workspaces. Therefore, determine the number of potential customers, the layout based on your business model, and the space size by considering the square feet per customer.
- The location you prefer: The location of your business is important for your interactions with customers. Evaluate the locations based on their ability to draw customers. Especially for retail businesses, choosing a busy and attractive location by considering local demographics, median income levels, and traffic volume plays an important role. Being in the right place can help you be more visible and grow your business.
- The type of property you’re interested in (e.g., retail, office, industrial, etc.): Many different commercial property types exist. The most popular ones are industrial, retail, and office space. The property type you should rent depends on your goals and what you’re looking for in a property. Working in a building unsuitable for your business needs can cause problems. For example, if you run a retail business, your business should be in a location with a storefront. Therefore, you need to understand the characteristics and risks of your commercial property.
- Budget for rent: Determining your maximum budget helps narrow your space searches to affordable ones. Remember some critical points for your commercial lease when reviewing your costs. How much you pay monthly, your rent will increase yearly, and other lease terms like insurance, property taxes, parking, etc. With these lease issues, there are also build-out costs like utilities and additional improvements based on your business type. So, when determining your budget, consider all these variables.
Step 2 – Understand the area.
Once you know what you’re looking for in a commercial property, it’s essential to research the area you’re interested in. This might include factors like the local economy, zoning laws, traffic patterns, and other relevant information.
You can use online resources, such as real estate websites or local government websites, to gather information about the area you’re interested in.
By doing your research ahead of time, you can make a more informed decision about which properties are suitable for your business.
- Research the area: Location is everything. While hunting for the best place, you should consider accessibility, security, demographics, foot traffic, competition, and growth potential. Some good business locations include industrial plants and warehouses for business parks, tourist attractions for hotel businesses, and the city center for coffee shops. For example, coffee shops need an urban location with foot traffic.
“In business, the wrong location leads to suffocation.” – Mokokoma Mokhonoana.
- Learn more about zoning laws and nuisance laws: Zoning laws are regulations that control land use in a particular area. They affect your business operations as these laws maintain the characteristics of neighborhoods, protect public safety, and determine what types of businesses are allowed in that area.
You also should research the nuisance laws; if you produce any noise or output, your neighbors could consider it a nuisance. You must ensure no research nuisance and environmental laws and regulations are against your business.
For example, if you open a restaurant, no noise and smell ordinances exist to operate your business successfully.
Step 3 – Hire a commercial real estate agent.
A real estate agent can help you find and negotiate the best possible deal on a commercial property.
They have access to a broader range of properties than you might find on your own, and they can use their knowledge and experience to help you negotiate lease terms and other essential details.
When choosing an agent, look for someone with experience in your specific industry and location, and make sure they have a good track record of successful deals.
Step 4 – Offer a Letter of Intent (LOI).
A Letter of Intent (LOI) is a document that outlines the terms of a potential lease agreement. It’s not legally binding but serves as a starting point for negotiations between the tenant and landlord.
The LOI should include details like the length of the lease, the rent amount, any concessions or allowances, and other important terms to negotiate in the discussions moving forward.
By presenting a detailed LOI, you can demonstrate that you’re serious about the property and has plans to negotiate in good faith.
Step 5- Negotiate lease terms.
Don’t hesitate to negotiate the lease terms. Everything is negotiable. Once you’ve presented a Letter of Intent and started negotiations with the landlord, reviewing and negotiating the lease terms carefully is essential.
This might include factors like the rent amount, the length of the lease, any concessions or allowances, and other essential details.
Working with your commercial real estate agent and/or legal counsel is essential to ensure the lease terms are fair and favorable to your business.
- Lease rate
- Rent increases
- Length of term
- Late fee
- Option to purchase
- Indemnity by the tenant
- Commencement date
- Renewal options
You can learn more about commercial lease terms here.READ
Step 6 – Sign a commercial lease agreement.
Once you and the landlord have agreed on the lease terms, it’s time to sign a commercial lease agreement. This is a legally binding contract outlining the lease terms and conditions.
Reviewing the lease agreement carefully and ensuring you understand all the terms before signing is essential.
Once you’ve signed the lease, you’re legally obligated to fulfill your obligations under the agreement, so it’s important to ensure you’re comfortable with the terms before committing.
Essential Details of Commercial Lease Application
Most landlords include the following essential details in their commercial lease application checklist. So, it is good to be familiar with these terms while seeking a commercial property.
- Name of the applicant’s business, current address, and how long the company has been at that address
- Contact information of any previous landlords
- Amount of rent the applicant currently pays or has previously paid
- Nature of the business and length of operation
- Names and contact information of all company owners
- Length of term the applicant wants
- Whether the company has ever failed to pay rent
- Bank the business uses, its contact information, and bank statements.
- Names of business and credit references
- Permission for a background and credit check
- A business plan, financial statement, profit and loss statement, balance sheet, tax returns, and income information
- Date and signature line
This crucial information helps inform the landlord about potential tenants and provides the details necessary to make an intelligent rental choice.
Frequently Asked Questions
A landlord can and should ask for important information like contact information, authorization for a credit check, and business income information. This guide’s “Contents of a Rental Application Form” contains a complete list. Also, landlords can ask questions regarding references and business history but may not ask anything violating federal or state law.What can a landlord ask for on a rental application?
If you rent your properties to businesses, you should screen applicants with a commercial lease application. Not doing so could mean you rent to a tenant who lacks the ability and resources to pay, ultimately hurting your bottom line.When is a commercial lease application used?
Potential tenants provide bank references to support their income, money in business accounts, and sometimes payment history. A bank reference can be a bank statement or letter from a bank manager, and it is a helpful way to decide if a tenant will be the right fit for a commercial space. What are bank references on a rental application?
You can download a commercial lease agreement form at LegalTemplates.net or use our template builder to create a customized lease agreement form. Landlords use our forms and builders to generate documents that fit their unique needs, such as commercial lease agreement forms for a restaurant space or an office rental application form for a law office.Where can I find a commercial lease agreement form?
