The Ins and Outs of a Commercial Lease

You're looking for a new commercial space for your business and have located a property that you believe is the best fit for you. Before you sign that lease, there are a few things that you need to consider:

• Rent. Let’s start with the basics! When leasing a space, rent is the equivalent of price per square foot. Nobody wants to pay for space they don't need or pay above market price. Make sure you're able to utilize the entire space and make the most out of your square footage. Also, familiarize yourself with market expectations for lease rates.
• Lease Term. A majority of landlords are looking for a tenant who can commit to an initial term of 2-5 years with the ability to renew the lease. Make yourself aware of when your lease contract begins and ends, as well as when you're responsible for any renewals. You don't want to be blindsided down the road because you didn't have a firm grasp on your lease timeline.
• Net Charges, Unexpected Costs and CAM. If you find yourself in a net lease or triple net lease, you'll find that there are other expenses to consider besides just your base rent. These leases sometimes include taxes and insurance, as well as common area maintenance charges (CAM). Landlords may also make the tenant responsible for major repairs (roof repairs, HVAC repairs and servicing, plate glass window repairs, etc.).
• Rent Escalation. It's common in commercial leases to see an escalation in rent over time. The average increase is between 3-5% annually, or anywhere from 12-15% over a five year period.
• Deposits. Most landlords require a deposit when leasing a space. This could be equal to first months rent. Many times, landlords will also require a tenant to pay the first and last month's rent, especially to a new business whose future may be murkier than that of a longstanding national tenant.
• Buildout. Each commercial property is different - some come delivered as a ready to go space for the tenant, while others will require a lot of modifications in order to make the space work. Negotiate with the landlord and see if he is willing to do any improvements himself (this is called a Tenant Improvement Allowance). Other landlords may do the buildout for you and amortize the cost of the buildout over the term of the lease. Some may not commit anything to a buildout and grant the tenant a rent abatement to offset some of the costs of building the space out. Always explore your options because each landlord is different!

Every lease is different, and they can be complex and intimidating. Remember to always utilize a commercial realtor and a lawyer before signing a lease. Never blindly commit without understanding the fine print!

Cameron Lombardo
RE/MAX Commercial Brokers, Inc.
clombardo@nolacommercial.com
(504) 838-0001  |  (504) 444-7897