The Basics of Commercial Leases

Owning and leasing out commercial space can be a very profitable business for your company. Typically, businesses will stay at one property for many years, and this makes for a great stable form of income for an extended period.

There are many differences between a commercial lease and a residential lease. Many commercial leases are for more than one year and offer extensions with the extended lease terms and rent amounts laid out in writing.

It can be very convenient for businesses to lease their space because it is a lower financial commitment than going out and purchasing a space. This is an especially good choice for new businesses so that they can gauge how profitable their business will truly be in the long run and are locked into the financial burden of a mortgage if their business doesn’t bring as much profits in.

The types of spaces that can be leased out to commercial clients do not stop only at office space. You can rent out restaurant space, a doctor’s office, a bank, and even bare land for commercial usage. The possibilities are vast and the opportunities for your space to bring In extra cash flow shouldn’t be limited to what is traditionally leased. You would be surprised at how many of your favorite restaurants and retailers are renting their space.

Typically, the cost of rent is calculated per square foot. Once you calculate the size of your space, you can come up with how much per square foot you want to charge and then calculate the total for the monthly rent price.

Commercial Lease often has what is called CAM fees. CAM fees are Common Area Maintenance fees. This fee covers the cost of services that the property owners must pay to maintain the building. Such services can include parking lot maintenance, signage, lawn care, landscaping, insurance, and real estate taxes. Usually, a general estimate of these charges is turned into a monthly fee, then at the end of the year, the real numbers are calculated and if there is an overage, then the tenant is billed for the remaining balance. If there was less paid out than the tenants paid, then the tenants may receive a refund check for the difference.

The leases should have the terms laid out so that both the tenant and the property manager understand the agreement. Topics such as the maintenance responsibilities of the tenant and the landlord should be stated and there should be no confusion as to whose responsibility is what financially. It is always best to reference the lease for any questions that you may have about repairs and alterations.

In most cases, with commercial leases, the tenant is permitted to make alterations with approval from the owners, at the tenant’s expense. This allows for the tenant’s business space to be personalized directly for their needs and business preferences.

It is also important to note if there are any conflicts of interest, such as if you own a multi-business property, such as a plaza or mall. Such conflicts can include not renting to two similar businesses in the same building, such as two dentists or two insurance companies of the same type.

Many other different items could be included in the lease agreement to make it as easy as possible for both parties to understand the agreement and to cover all your bases legally with the agreement. Sometimes it can be better to involve legal counsel to make sure you have everything set up correctly.

Setting up your first commercial lease can be overwhelming, but as long as you are diligent in ensuring that all of your bases are covered, you will be able to relax and know that you are covered and your tenants are informed.