I keep hearing from Cutting for Business readers that they are in the process of opening their own retail stores or that they are beginning to do research to do so. I’m hearing about everything from wooden sign workshops to vinyl and blank suppliers and even a few gift stores and boutiques! Since I’ve been asked a lot of questions about renting commercial spaces; here are ten things you need to know before you start looking at leasing a commercial space.
10 Things to Know About Renting a Commercial Space
- Lease lengths. Unlike renting a house, most commercial space leases are not for 1 year. It is most common to see lease terms of 3 to 5 years or more.
- Lease renewals usually go up in price. Referred to as escalation, if you renew your lease after it expires – the price will usually go up.
- Leases are not standard. In the housing market, most leases are standardized. In the commercial world, leases are usually lengthier and tailored to the landlord or space. I’d recommend having a lawyer familiar with commercial leasing review the lease before you sign.
- Gross versus net. There’s two varieties of commercial leases: Gross and net. In gross leases, everything you pay is bundled into one price that you pay monthly. In net leases, you pay a rent amount plus taxes, insurance, and CAM. It is important when looking at spaces to know which you are looking at.
- Common area maintenance (CAM) or Triple Net (taxes, insurance, and CAM). In addition to the monthly lease rate, most commercial leases require a monthly CAM or Triple Net. This amount goes to maintaining common areas such as hallways, parking lots, elevators, and property taxes and insurances.
- Prepaid rent. In many cases, new businesses moving into their first space are required to prepay a certain amount of rent.
- Maintenance. Before you sign on the dotted line, be sure you know who is responsible for building maintenance. In some commercial spaces, the landlord handles repairs – in others – the lessee takes care of them. For a new business, it can be quite expensive to fix something large that breaks – like an AC system!
- Build outs. What you see when you tour the space is likely what you’ll get. In most cases, improvements to the space (called the build out) are done at your expense; in others you may receive an allowance. Also, the landlord may require that you use their contractors.
- Signage. Be sure to ask what signs are required and what parameters must be followed. For example, some landlords require signs in a certain color scheme, while others may require lit signs. (Commercial signs can be very expensive.)
- You’ll pay even if your business closes. If your business fails, you are still required to pay rent and maintain the space. Some leases and landlords will allow you to sublet (rent it to someone else) the space – while others will not.
My final words of advice in renting a commercial use space? Negotiate! Everything is negotiable in commercial real estate! And, it’s best to use a real estate agent that is familiar with commercial rentals.
Tell me in the comments, do you hope to rent a space in the future?
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