What Is A Commercial Lease Agreement?
Signing a commercial office or warehouse lease agreement must not be taken lightly, considering its significant impact on your business. Make sound business decisions; a wrong decision can destroy your company’s core foundations. Before signing any commercial lease, a lease agreement’s nature, types, and applications must be thoroughly understood. A commercial lease agreement requires a thorough analysis, so do not rush into it because it will significantly impact your business operations.
Business owners have many questions about the nature of a commercial lease agreement. For example, what exactly is a commercial lease? What are the different types of commercial leases? What is the most suitable lease for my company? Will my landlord pay for all the property operating expenses during my lease? What do tenants pay for when they sign a new lease? What are the best commercial spaces available for rent in my area? How to choose the best commercial lease for a business?
All these are critical questions, with different answers for each business. JW Management has explicitly shed light on signing a commercial lease in this blog, so keep reading to learn it in detail.
What Is a Commercial Lease?
A commercial lease is a property leased by business owners for retail, office, or industrial use. The landlord and tenant sign a commercial lease agreement in a commercial lease. In this agreement, tenants get the right to use a particular commercial property for business operations. A commercial lease usually lasts about 5 to 10 years, ultimately creating a long-term relationship between the lessor and the lessee.
Renting a commercial space demands less capital; therefore, businesses prefer it over buying a property for business. In a commercial lease tenants are provided with more leniency in negotiating lease terms and conditions compared to a residential lease.
What Is the Difference Between Residential and Commercial Property?
Residential and commercial leases are the two main types of property leases. Before signing a contract, business owners must be familiar with each type of lease. JW Management listed down below the significant differences between commercial and residential leases.
1. Property Usage
A residential lease grants tenants the right to live in a particular property for their daily living. Commercial lease refers to spaces where businesses manufacture and sell products or services. Commercial property in this agreement includes retail stores, office spaces, warehouses, restaurants, or parking garages.
2. Lease Duration
Residential leases are less binding than commercial leases. The duration of a commercial lease is five to ten years. This agreement often consists of a renewal option before the contract expires. When it comes to residential leases, the agreement is only for a year and then renewed on a monthly basis. In the event that the property will no longer be leased, the land owner prepares the property for the new tenant. The land owner lays out money for property build-out and ensures that the commercial space is ready for occupancy.
3. Legal Protection
The Residential tenants have several legal protections in a lease agreement. There are commercial lease legal protections that are not applicable in a residential lease. In a residential lease, the landlord is responsible for the maintenance of the property. Usually, residential tenants’ protection from eviction and incremental rental fee increases are better than tenants of commercial leases.
In a commercial lease, a landlord is responsible for the upkeep of the leased property; a commercial tenant is not. It is always beneficial for tenants to have an understanding of the different types of leases before signing an agreement.
4. Rent Control Laws
A residential property may be subject to rent control laws in some areas, which is not applicable to commercial leases. In a commercial lease, the landlord can raise the monthly rent. The lessor and the lessee are only bound by the agreement signed by both parties when leasing a commercial space. So, it is prudent to conduct research on the different types of leases in the commercial real estate industry.
Commercial Lease Types
People often inquire about which commercial lease fits their business the most. To be honest, the answer varies from business to business. When it comes to commercial leases, geographical location, overall budget, type of business, buildings, and landlords significantly impact the application of the lease agreement. However, it is crucial to understand the different types of leases in order to protect your interests during the decision-making process.
Tenants pay rent for real estate in every lease agreement. Commercial leases differ in terms of who pays for property taxes, building maintenance, and insurance. Interestingly, paying the landlord a fixed percentage of your monthly sales is also an option.
Following are six common types of commercial leases you need to know before looking for any commercial/retail space:
1. Full-Service Lease
A full-service lease is often referred to as a gross lease or full-service gross lease in commercial real estate. It is a lease where the renter merely has to pay the base rent. All running costs for the leased business property are covered by the lessor. Insurance, utilities, taxes, and maintenance charges are included in these operational costs.
Full-Service Lease = Base Rent + Operating Expenses
A full-service lease is preferred by businesses over other types of commercial leases. The strain on the business owner is lessened by this lease, allowing them to concentrate more on running their company. In a full-service lease agreement, the land owners have the right to increase the rent per square foot since all costs are covered. In some other circumstances, a full-service lease includes an “expense stop.” The expense stop is an acceptable charge that the lessor will pay to help safeguard the lease payment under extremely difficult financial circumstances. The tenants will responsibly pay any additional sum resulting from the allowable expense. This lease agreement is perfect for business owners with stringent budgets because they may anticipate a predetermined amount in their leasing expenses.
2. Modified Gross Lease
Modified gross leases, also known as modified net leases, is the second most common kind of commercial lease. Between a full-service lease and a triple net lease, this kind of lease falls in the center. The modified gross lease allows for a wide variety of flexible operating expense discussions between the lessor and the lessee.
In a modified gross lease, the lessee will be paying the base rent amount and a share of the operating costs. Property taxes, insurance, utilities, structural repairs, and upkeep of common areas are among the costs that are frequently negotiated between a landlord and a tenant. In commercial towers and business parks, the modified gross lease is typical.
3. Single Net Lease
The simplest kind of business lease is a single net lease or N lease. The basic rent and real estate taxes related to the commercial space are paid by the tenants under this lease type. Compared to a gross lease, the base rent for a single net lease is lower. Additionally, the landlord is responsible for paying the remaining operational costs, including utilities, building insurance, and maintenance of the property.
4. Double Net Lease (NN)
A single net lease and a double net lease are quite similar. The main distinction between a single net lease and a double net lease is that the tenant is responsible for paying the property insurance in addition to the base rent and taxes. In this kind of lease, the landlord pays for all necessary maintenance, repairs, and utilities. In a business facility with multiple tenants, the double net lease is customary.
5. Triple Net Lease (NNN)
The opposite of a full-service or gross lease is a triple net lease, sometimes known as a NNN lease. Tenants are responsible for paying the commercial property’s operational expenses. In a triple-net lease, the tenant is accountable for paying the base rent as well as a prorated portion of the property tax, insurance, upkeep, and repairs. In exchange, tenants are free to alter the building’s layout as they see suitable. Given that the operating costs are covered by the tenants, the base rent of the NNN lease is lower than the gross lease.
6. Percentage Lease
The percentage lease and gross lease structures are very similar. Percentage leases are popular in retail and restaurant settings. A percentage lease requires tenants to pay the landlord a percentage of their gross revenue in addition to the base rent. During the commercial lease agreement, the landlord and tenant agree on the percentage of sales.
Percentage Lease = Base Rent + Operating Cost + Percentage of Gross Sales
Locating the Best Commercial Space for Your Business
The most important and difficult decision a business owner must make is locating the best commercial office space for their company.
Many factors should be considered before engaging in a lease agreement. As a result, it is critical to ensure that you are making the best decision for your company and its employees.
Sign a lease with a professional property management team that emphasizes your company’s goals, wants, and requirements. A business lease is an extended agreement. You’ll have a stress-free leasing experience if you sign a contract with a business-friendly commercial real estate firm, like JW Management.
Since 1978, JW Management has been in the real estate business. JW Management has multi-tenant and single-tenant properties in the North Arlington Entertainment District, Westgate Plaza, and The Hospital District at 1625 West Mockingbird. JW Management has been in the industry for decades and is known for having a trustworthy team that provides exceptional support to its tenants. Leasing a commercial property is not just about the building in which you will be located; it is also about a healthy relationship with the property management team. Take the time to thoroughly research the commercial real estate company with which you intend to do business.
Top 5 Steps to Locating Your Next Office Space
Finding an office space is more frustrating than searching for an apartment. Navigating the complexities of commercial real estate is a difficult task to perform. Wrong decisions can produce disastrous consequences for your company.
You’re completely prepared to jump into the pacific of tenant-landlord relationships when you are wholly aware of the commercial real estate leasing process and know your business needs and financial affordability. JW Management outlined the top 5 steps to locating your next office space that will exactly fulfill your present and future business needs. It will help you in the commercial leasing process.
1. Understanding the Costs of Leasing a New Office Space
The rent is one of the most fundamental and important aspects of leasing a commercial space. The cost of leasing varies from one location to another. Business owners must identify the leasing costs associated with the office space in order to determine if the leasing cost is within the company’s budget. According to reports, signing a lease without fully understanding the total cost can turn an affordable location into an expensive one. Protect your company from unforeseen charges.
2. Prioritize Your Office Location
A business owner’s first and foremost important task is to prioritize the company’s location since employees despise long commutes on the way to work. According to Clutch’s research, nearly half of survey respondents consider working near their homes to be the most crucial factor in an office location.
According to studies, shorter commutes result in more satisfied and productive office workers. There are numerous Arlington Tx Office Spaces with the best locations corresponding to the described location factor. Offices that are easily commutable attract and retain workers from a wider geographic area. Employees also appreciate being close to cafes and restaurants. Another consideration is parking space, as the majority of the workforce, roughly around 70%, drives alone to work.
3. Match Your Office Space With Your Business Plan
Prepare a business plan first if you don’t currently have one. To gain insight into your needs and desires, you must create a business plan that is outlined, critically analyzed, and ready for execution. When you have a comprehensive master plan in hand, use it to decide on your new office space and commercial lease standards.
Finally, your new workplace is a tool that will assist you in accomplishing the business goals outlined in your comprehensive, tactical, and long-term master plan. Dallas — Fort Worth Office Buildings are among the viable solutions that will provide your business plans with the biggest platform for success.
4. Gather Your Employees’ Ideas for the New Workplace
It is critical to obtain your employees’ perspectives prior to signing any commercial lease for your new office space. As such, gather your all-star team and consult with them on what matters most for them at work. By soliciting their feedback, you can lower the risks of commercial leases while also obtaining the best peer-reviewed office design to keep your employees focused and motivated.
According to Forbes Magazine, 87% of employees expect their employers to provide positive workplace benefits such as:
1. Wellness Rooms
2. Ergonomic Seating
3. Company Fitness Benefits
4. Nutritious Lunch Options
5. Sit-Stand Desks
As a result, we recommend that you consult with your employees before signing a commercial lease and finding a new office space.
5. Select an Office Space With a Variety of Rooms
A sense of independence in the working space is essential, so select an office space with various comfy and homely rooms. You need to search for an office space with multiple rooms so your team can work on a project without interruption.
According to research, many businesses provide a wide range of office spaces.
1. Personal Spaces- 74%
2. Large Meeting Rooms- 56%
3. Small Collaborative Spaces- 53%
4. Relaxation Areas- 51%
5. Quiet Places- 41%
As a result, always choose an office layout that meets your team members’ needs and helps promote an efficient workflow at your organization. If you have a higher budget, you might want to hire an interior designer to make your office look so much better.
Signing a commercial lease is not easy, so businesses must thoroughly research the ins and outs of lease terms before finalizing any sort of lease agreement. JW Management has gone to great lengths to provide real estate tenants with an extensive explanation of commercial leases and their implementation.
Leasing Commercial Property Tips
We have covered the majority of commercial leasing. Nevertheless, if you wish to learn more about the leasing terms, click the following JW Management Tools. These tools explain the leasing terms and conditions for office space, warehouse, industrial, flex, and other commercial areas.
1. Commercial Leasing Terms & Conditions
2. Tenant Construction Buildout
3. Leasing an Office, Flex, Industrial, or Warehouse Space
4. Designing & Permitting Your Office, or Warehouse Space
