March 29, 2024

Use Real Estate Adviser To Lease Commercial Property

Posted for Communication Research Associates
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By Sheila Gibbons Hiebert

Business owners looking to lease commercial space for their enterprises may be surprised to find out how very different the process is from residential leasing. The many variables involved in leasing commercial property can make lease negotiations complicated, even nerve-wracking. Think of it as a navigational process: when renting an apartment or home, you can manage with a simple compass. With commercial property, you need a tool more like Google Earth.
office-space-for-lease-sign

In Southern Maryland, the state’s fast-growing region, smart decisions about corporate location and amenities are more important than ever. It’s wise to have a real estate agent experienced in commercial property leasing to walk through the process with you.

Residential and commercial real estate leases have the obvious basics in common: rent amount, lease term, assignment of responsibility for maintenance, repair and utilities. Beyond that, issues get much more detailed for commercial property rentals. For example:

 

— Relocating is expensive, in terms of logistics, communication and time spent away from your core business activities. Before you sign on the dotted line, be sure you’ve analyzed whether space you’re considering is not only adequate for your purposes today but also would serve you well as your business grows.

— You need to make sure your and the landlord’s responsibilities for common-area (CAM) fees are clearly spelled out.

— It’s important that you have an option to renew the lease but steer clear of automatic renewal provisions. And be very cautious about being asked to sign long-term leases.

—  If you’re a retailer, you’ll likely want to see provisions in your lease that would prevent a landlord from leasing to a direct competitor and that would protect you if an anchor tenant departed and foot traffic declined. If that were to happen, a “co-tenancy clause” would allow you to break the lease if the landlord didn’t replace the anchor tenant within an agreed-upon period. Sometimes landlords also ask retailers to pay a portion of their profits (“percentage rent”) to the landlord in addition to monthly rent. Check to see if this is a requirement of the lease your landlord is offering.

Nolo.com, the online legal library, offers a heads-up to prospective tenants on two other important points: square footage and layout. “An ad might describe space as ‘2,000-Square-Foot Office Suite in New Building’ or ‘2,000 Square Feet of Prime Retail Space. However, 2,000 square feet doesn’t always mean that you’ll pay for and occupy exactly 2,000 square feet.

“Strange as it may seem, many landlords — especially in office buildings — take their measurements from the middle or even the outside of exterior walls. Obviously, if a landlord uses this method of measurement, you’ll wind up paying not only for usable space but also for some or all of the thickness of the walls.”

Nolo.com also urges space shoppers to look carefully at the layout being offered: “Your rental cost may be less for a $20-per-square-foot space that’s efficiently laid out than for an $18-per-square-foot space with an awkward configuration, simply because you’ll need less of the $20-per-square-foot space.”

As with any strategic business decision, it’s vital to have good advice as you navigate the leasing process. Commercial property owners typically retain brokers to market the property and negotiate the lease. Commercial real estate experts recommend that prospective tenants retain the services of a “tenant representative,” who also should be a licensed commercial real estate broker. The landlord, not the prospective tenant, pays for the tenant representative’s service to the tenant.

This arrangement offers protection and efficiency for both parties to the lease. The tenant rep can work with the landlord or the landlord’s broker to negotiate rental incentives and keep costs fairly balanced between landlord and tenant. If the tenant is interested in leasing “a plain vanilla shell,” as one office building suite was described in a recent O’Brien Realty Lexington Park listing, the tenant rep can also negotiate who will make the decisions about improvements to the space and who will pay for them.

Another good reason to work with a real estate agent is making sure you see everything on the market that meets your requirements. The Multiple Listing Service (MLS) doesn’t show commercial properties to the extent it does residential real estate, so popular real estate web sites won’t always display everything you may wish to consider for your business. An agent can provide access to the commercial market and guidance on how to navigate it.

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