Commercial Leases: Your out of Pocket Costs
If you want to run a booming business, then you will undoubtedly need to lease commercial space in a good location. While you are probably familiar with the idea of leasing residential real estate, you should understand that leasing commercial real estate can be a bit trickier. In fact, there are a few different out of pocket costs you will need to become familiar with before jumping into a commercial lease.
The idea of base rent is the amount of rent you will be agreeing to pay each month for the commercial space you are leasing. Depending on how your lease works, this amount will either remain the same or change when renewing your lease. This idea is not so different from what you already know about how residential leases work. Of course, there are other commercial real estate terms that will be useful for you to learn that outline other out of pocket expenses you will occur as a lease holder.
Above and beyond paying your base rent, you will also be obligated to other fees that fall under the category of incidental expenses. These expenses will include, but are not limited to, insurance, maintenance costs, property taxes and more. When you consider these additional costs, it is important to be prepared to budget these in as part of your cost of doing business.
Another key commercial real estate concept you should become familiar with is Common Area Expenses. When renting commercial space, it is often the case that the same commercial building or structure is being leased by other tenants as well. Some areas of the property and expenses are considered common to all tenants. This could include bathrooms, elevators, kitchens, the cost of landscaping or maintaining the outside grounds, the cost of a building janitor and so on. The good news with Common Area Expenses is that you do not have to shoulder the full burden of paying these expenses, because these are expenses split between the various tenants leasing space within a commercial property. However, before you sign a lease, you will want to be clear as to how much of the shared expenses you are going to be expected to pay and how often. For example, something like removing snow out of a parking lot does not typically need to be carried out year round. Neither does lawn mowing service. As you might expect, your landlord will want tenants to pay more of these operating costs, and the tenants will want the landlord to shoulder more of these costs. This is why negotiations are critical to obtaining a good commercial lease.
When dealing with a commercial lease, you should be ever ready to negotiate your terms. Remember, a commercial landlord with vacant storefront units or unleased buildings is essentially losing money on unrented space. So, you should never feel as if there is no room to negotiate terms to lean a bit more in your favor to reduce out of pocket costs. Additionally, you should expect more willingness from the landlord to give in a little if you are going to be guaranteeing them a long term lease option as opposed to a short term lease option. Keep in mind that agreeing to a lease is all about building a relationship with your landlord. The terms you are able to negotiate in your favor will undoubtedly affect how that relationship works out and how much cost you will be incurring from one month to the next. As a rule of thumb, you will always want to work with a competent commercial attorney to ensure that you do not become the victim of a commercial lease filled with unfair provisions.