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What should you know about commercial leases?

On Behalf of | Dec 4, 2023 | Real Estate Law

Finding a suitable space for your business can be a challenge. Once you find the ideal location, you’ll have to either purchase it or lease it. Many new businesses don’t have the funds available to purchase property, so they opt to lease whatever space they need.

Leasing commercial property is much different than renting a residential property. The terms of a commercial lease are quite different, so learning about the ins and outs of this kind of contract is important before signing on any dotted lines.

Negotiations are possible

One thing that’s distinct about commercial leases is that you can generally negotiate the terms of the lease, whereas the terms of residential leases tend to be fairly set in stone by the property owner. It’s best to go into these negotiations with an idea of what comparable lease rates are in the area.

It’s often possible to negotiate the length of the lease and specific points about building renovations. Many landlords are happy to provide some concessions, but this isn’t always the case. You’ll have to find the balance between where you and the landlord are willing to meet.

Lease terms vary greatly

Most commercial leases include a form of net lease. These dictate what types of financial responsibilities the tenant has beyond their base rent payments. In some cases, such as restaurants, the commercial lease may include base rent plus a percentage of profits.

  • Single net lease (N): The tenant pays for property taxes and rent. Landlord pays everything else.
  • Double net lease (NN): The tenant pays for property taxes, insurance and rent. Landlord pays other expenses.
  • Triple net lease (NNN): The tenant pays all expenses for the property plus rent.

Typically, the rent in a triple net lease is the lowest of the three types because the tenant pays more of the other financial responsibilities. One thing to be careful about is how certain communal expenses are handled when there are multiple businesses sharing a larger space.

Ultimately, you have to do what’s best for your business. Commercial leases are often complex, so having an attorney review the document prior to you signing it is important. Making this effort can help to protect your interests as you seek to grow your business.