Share this Article

Things to Consider Before You Sign a Commercial Lease

Written by on Sunday, 05 August 2007 7:00 pm
 PRINT  |   EMAIL

Before you sign a commercial lease here are some important points to consider so that you don't get locked into a space that isn't suitable for your needs.

Location, Location, Location

"I think what people need to consider is if the new space is located in a central location that has easy access to public transportation," says Lauri Greenblatt, President of Promus Management.

The company was formed in 2001 to help with commercial income property management needs throughout Southern California. Her website, promusmanagement.com , has information, articles, and case studies.

Greenblatt says, before signing a lease be sure to understand the true benefits of studying the location of an area. "In a competitive job market where there are few employees, a good location can help an employer to attract and retain qualified employees.

Also being centrally located can increase business because your office is easy to get to.

It's also a good idea to take into consideration the patterns of growth. As time goes on will your location be part of an up-and-coming area that has a fully-serviced infrastructure or is the growth occurring in other parts of the county that would later make the area you're considering leasing in on the outskirts of town?

How visible do you need to be?

If your business needs more visibility don't sign a lease without checking out how much activity goes on in the area. Is there significant foot traffic? Will your office or company be visible to those driving by? Is it easy to access? Is there traffic congestion? Sometimes along with visibility comes heavy traffic so being seen can be a double-edge sword. Consumers can spot you but they have a heck of a time getting to your business -- dealing with heavy traffic can be a huge deterrent and ultimately hurt your bottom line.

How much growth do you anticipate?

Don't just live in the now. It's critical to think ahead and anticipate your company's growth. "If you are in a rapid growth mode, consider negotiating the right to expand your premises during the lease or if that's not possible negotiate a cancellation clause," says Greenblatt. She says most landlords will allow a cancellation if they are given plenty of advance written notice and paid any un-amortized leasing commissions or tenant improvements which are basically any costs that were incurred to lease the space to you.

Don't fake it!

Most commercial leases are legal-sized documents that are anywhere from 15 to 30 pages long. There is a substantial amount of information and Greenblatt says usually a tenant will understand most but not the entire lease. If that's the case for you, before signing the lease, this is one time you simply can't fake it.

"Consider asking an attorney to review only the sections you don't understand," says Greenblatt. She says don't waste your money having an attorney review the entire document, "You'll probably understand 80 to 90 percent of it."

Greenblatt says an area in the lease to pay very close attention has to do with any additional charges that the landlord can pass through to you in the form of additional rent. Greenblatt says the charges come in the form of common area maintenance (CAM) charges or things like the triple net lease (NNN) can require a tenant to pay just about everything such as taxes, insurance, and maintenance costs.

A gross lease is one in which you pay just the rent and that covers all of your operating expenses. A net lease is one in which you pay your base rent plus on top of it you might just pay your taxes or you might pay taxes and insurance. In a whole triple net lease you pay your share of everything taxes, insurance, and operating expenses.

Depending on the type of lease that you sign, "It can literally double your occupancy cost; it can be almost as much as your rent. So it's really important to understand what kind of lease you have and what can be passed through to you," says Greenblatt.

She adds that this section in a lease can be difficult to decipher. That's why Greenblatt recommends contacting a Certified Commercial Investment Member for assistance. "CCIMs analyze and advise people on commercial real estate investments," says Greenblatt. You can locate a local chapter by visiting ccim.com .

The best advice is don't allow a lack of understanding to compromise your future -- before you sign a commercial lease be sure to read it carefully and when in doubt, ask for help from experts.

Rate this item
(0 votes)

  About the author, Phoebe Chongchua

1 comment

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.