Critical Commercial Lease Terms That You Should Know

Renting a commercial zone is a monumental duty as the chances of triumph or failure of your firm depends on the specified terms of the lease agreed upon by the corporate tenant. i.e. commercial lease terms.

Before approaching a property owner, you must first understand how commercial leases operate and before signing your lease agreement, ensure that you comply with all stated commercial lease terms.

Commercial Lease Terms to Bear in Mind

Here are some critical commercial lease terms that every corporate tenant must know at all times –

The Length of the Lease

It is more commonly referred to as ‘lease term,’ and is the duration for which you need to rent the space.

Agreeing to this lease term implies that you will be obligated to settle rent for the entire period of the lease regardless of your utility of the space.

You must ensure your need for the space for the entire mentioned lease term.

Rentable Square Footage

It will help if you discover how your landlord measures the rentable square footage. You must make sure that your landlord does not charge you for the space that you do not occupy.

Non-exclusive spaces that include elevators, restrooms and hallways are often included in the rentable square footage.

These shared spaces will inevitably add up to your rent, which makes it crucial for you to know how much extra you are being charged.

Type of Lease

There are two types of commercial real estate leases –

1. Gross Lease – This lease implies that you will have to pay one lump sum for rent, from which your landlord will pay expenditures that include property taxes, maintenance costs or insurance
2. Net Lease – The net lease states that you will pay less base rent, but you will have to bear other expenses separately.

Obligations for Maintenance and Repair

Make it clear whether it would be you or the property owner who will be liable to maintain the premises, especially the common areas.

If there exists a lease term that imposes that you will have to pay for the common area, then the conditions will mean paying for the maintenance of space that is not exclusive to you.

Be sure to have a conversation with the landlord on this lease term beforehand to help you reinforce your negotiation for a fair deal.

Improvements and Modifications

It will help if you know whether there will be enhancements, tweaking’s, or fixtures that might add to the allotted space.

If your landlord expects you to pay for them, be sure to know if you will own the fixtures after the lease term terminates.

Renewable Options

Inspect if you will have an opportunity to renew your lease and what would be the terms.

You must know whether the landlord will reset the rent as per the fair market value, or whether there would be room to negotiate a planned increase.

You must know if there would be any allowable increases/escalations to your rent and what method would your landlord follow to compute the raise.

Lease Termination

One of the most important commercial lease terms is to know how the commercial lease may terminate, the involvement of penalties, and whether you would receive notices for termination. You must know whether any arising disputes will get straightened out, mediated or taken to court.

About

OHI is a fifteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease abstraction, administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 50000 units across clients.

We invite you to experience leasing and accounting outsourcing through us.