Representing Tenant Side of Commercial Leasing

Finding a place of business for your small business is a challenging and an exciting endeavor. A commercial lease is a complex document that specifies general lease terms and your responsibilities and expenses.

Negotiating the lease is daunting process with many complexities. Even though you may be a strong negotiator in your business, having professional real estate representation can save you time, money and effort that would better benefit your own small business.

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How we can help your business find its home

  • Professional expertise.
    Aside from being licensed real estate agents, we have years of experience in helping our clients find work space for their small businesses. We have helped numerous clients ranging from restaurant/café owners to businesses looking for office space, to trucking yards and auto mechanic shops. We know what is available and what the landlord requirements may be. What financials are necessary as well as fair lease rates and terms.
  • Use time efficiently.
    Searching for a new place of business can be very time consuming. We will need to invest time into touring potential spaces for your business but having us at your side will use your time efficiently. We will only tour spaces that fit your budget and will fit your business needs as well as be available as far as your financial situation. We will save you valuable time excluding properties that require substantial assets and personal guarantees. For small business owners, nothing is more disappointing then finding a space to only find out that your business will not be approved for occupancy based on the financials.
  • Identify proper space for your business.
    We understand time is money so we make sure we understand necessary features of the space for your business to be successful. Location may be critical to your businesses success, or maybe you are just starting out and short lease term is a priority, maybe you need a certain type of property, etc. We are here to help you find the right space in the shortest period of time.
  • Negotiations.
    We negotiate basic lease terms with the landlord, pushing for the less responsibility for you as well as competitive lease terms, aggressive free-rent period and a generous build-out allowance.
  • Submit a letter of intent.
    Once we find the space and verbally negotiate basic lease terms as well as some details that pertain to who is responsible for what as well as which party pays for what expenses, we will compose a Letter of Intent. This document spells out basic lease terms such as price per square foot, approximate expected operating expense, which immediate expenses the tenant is responsible for such as utilities and who pays for conversion of the space and the upgrades if the space needs to be altered in any way. The Letter of Intent will also specify construction dates, move-in dates and free rent period. Once we agree, in writing on lease terms, the landlord will provide the lease document. This lease document needs to be taken to a competent attorney for review and adjustments to ensure your legal protection.

Lease Terms and Free Rent

Once we find the space that fits what you are looking for, our first order of business is to begin preparing a Letter of Intent. We will specify our lease terms such as:

  • Duration of Lease
  • Price per square foot as well as projected operating expenses
  • Option to Renew
  • Construction, if any and who pays for what:
    1. Possession date
    2. Start of construction date
    3. Move-in date
    4. Free rent period and when the first payment is due
    5. Which construction expenses are covered by landlord and which expenses are covered by tenant

We generally recommend the shortest term possible. Most landlords will not consider a lease under 2 years (smaller, private mom-and-pop landlords will consider short term leases). We also recommend several one or two-year lease term renewal options. The rent does not increase at the end of your lease term, but rather with each option we can specify a ceiling increase or renegotiate altogether. Short term leases are great as they do not tie your business down to the location, if your business grows, you are free to move at the end of your term; however, larger corporate owned landlords often have minimum lease terms and most will not consider a leases shorter then 5 years.

The longer the lease, the more concessions the landlord may be willing to offer. The concessions can come in the form of free rent and/or tenant-improvement, or build-out, allowance. Lease terms vary based on if you are accepting the space in as-is condition and using your own funds to build it out or if you are signing a lease and the landlord has a certain allowance for build-out to fit your businesses needs.

Generally, the landlord will offer a “free rent” period for your business to have adequate time for moving and situating. If you are remodeling and doing construction, there may be a separate construction period that does not require rent. Situations vary based on who is paying for said construction and the amount of work that the space needs for your business to move in. Generally the landlord will offer 120 days of free rent but the length can vary based on each individual situation.

NNN vs Gross lease

When it comes to the building maintenance and operating expenses, the landlords goal is to pass as many expenses on to the tenants as possible.

  • NNN Lease.
    In a triple net lease, or NNN, the tenant pays their monthly base rent and an additional amount (usually calculated per square foot) to cover property taxes, insurance and operating expenses as well as maintenance of the common areas. Operating expenses usually include upkeep of common grounds, shared facilities such as the lobby, restrooms or stairwells, parking lots, etc. These expenses are usually pro-rated among the tenants of the entire building according to their percentage share of the total building space.

    We can help you determine the offered price per square foot as well as approximate or projected operating expenses that are typically estimated as an additional X amount per square foot. Utilities are always paid separately by the tenants.

    Please note, while your base rent stays the same per your lease agreement, the NNN charges can vary based year-to-year. A competent attorney will ensure you are protected form paying unreasonable amounts.

  • Gross Lease.
    A gross lease will typically have a certain monthly dollar amount that covers all expense, the rent as well as any taxes, insurance, and any operating expenses. Gross leases are not as common but area variable in some areas.
  • Maintenance and tenant repairs:
    Typically in a commercial lease, the landlord will be responsible for major building maintenance such as the structural components, roof, exterior walls, windows, sidewalks, parking lots, doors, etc. Some landlords will attempt to require the tenant to replace failing equipment such as a heating and air conditioning unit which could add an immense financial burden. While it is reasonable for the landlord to request the tenant maintains the units by changing filters and getting yearly service, replacing the unit should be the landlords responsibility.

    When we negotiate the lease for you, we insist on the landlord being responsible for as much as possible lowering your unexpected costs.

Hire an experienced attorney

Having an experienced real estate attorney review the lease document prior to signing is critical. Attorneys will make many corrections to the landlords lease proposal protecting your best interest.

The proposed lase document we receive from the landlord has been put together by the landlords attorney. That document contains language that is intended to relive the landlord of as many expenses as possible. Often the terms are not fair and sometimes take advantage of the tenant. We can refer you to several experienced attorneys specializing in commercial real estate to ensure your interests are protected.

There are numerous clauses that need to be considered based on the type of business you have. Some of the most common things to watch out for:

  • Personal guarantee.
    Should there be unforeseen trouble in the business a personal guarantee is just that, you are personally guaranteeing the lease payments. Meaning all of your personal assets, your house, your cars and any bank accounts may be at risk.
  • Sub-Leasing.
    Should you decide to move you place of business, your attorney will recommend to include a clause on your right to sub-lease your space.
  • Exclusivity Clause.
    This clause guarantees that your direct competitor does not move into the same commercial development.
  • Co-tenancy.
    This clause allows you to get out of a lease if a large anchor store in your development closes its doors. Many large shopping centers rely on large anchor stores to draw traffic to the location, for example if you are located next a movie theater and you account on their traffic to bring customers to your coffee shop, this clause would let you get out of your lease if that anchor store closes or moves.

Right to Renegotiate

With the recent Coronavirus situation, many learned that even though you may be locked into a legal lease, the terms can always be re-negotiated. The landlords understand the time and cost involved in finding a new tenant and most landlords realize that suing a tenant experiencing a hardship to fulfill lease terms will be a waste of money, so the landlord will often work with their current tenants to work through the difficult months.

If you can convince your landlords that you have an extraneous situation, the landlord may offer you an incentive to stay and continue your business with hope that your situation will turn around in a reasonable time period. While getting a month or two of free rent is not likely, you may be able to get a reduced lease payment for 2-3 months over a permanent reduction for the duration of your lease.

Whatever your business sector, entering a commercial lease is a complex, detailed and legally binding process. Accurately defining the terms of the lease with your best interests protected is critical and can save significant money in the long run.

Our goal is to not only find you the space that fits your needs, but reduce as much risk as possible for the duration of your lease. Qualified, experienced real estate representation is critical when negotiating a commercial lease for your small business. We look forward to hearing from you for a confidential conversation about how we can help you!

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