Types of commercial leases
Leases used for commercial property differ from residential leases in a number of important ways. For example, there aren't any standard forms for commercial leases, and commercial leases may have much longer terms than residential leases. There are also fewer protection laws for lessees. This makes it doubly important for you to understand any commercial lease before you sign it.
There are 3 main types of commercial leases: percentage, net, and full-service. No matter what type of lease you have, make sure it includes terms that work for both you and your business.
Percentage leasesIf you commit to a percentage lease, you'll have to pay base rent plus a portion of monthly sales to the property owner.
With some percentage leases, you won't have to pay a percentage of your sales regardless of how much money you take in. You may only have to pay a percentage above a certain dollar amount. For example, you might have to pay 5 percent of all sales above $30,000 for the month. Percentage leases are common in retail spaces, such as in shopping malls.
Net leasesIn a net lease, you pay base rent plus some or all of the landlord’s total costs associated with maintenance, property taxes, insurance, or services like water and garbage collection. The percentage you pay is proportional to the amount of space you occupy in the building. Depending on how you use a property, the extra fees within a net lease can quickly add up. Look for a clause in the lease that stipulates a cap for what you'll have to pay beyond the base rent.
"In the U.S. most commercial leases are 'triple net' leases. This means that the tenant pays pro rata charges for landlord's taxes, insurance, and common area maintenance or operating expenses for the building, shopping center or mall."
Fully-serviced leasesFully serviced leases are a convenient option. The landlord takes care of maintenance and other normal costs associated with the property. Because fully serviced leases include so much, the base rent on these agreements is often higher than on other types of commercial leases.
This type of lease is common for office buildings, but you may also be able to find a retail or industrial space that comes with a fully serviced lease. Fully serviced leases are also known as gross leases.
The terms of a commercial leaseCommercial leases will include some of the same information as a residential lease. However, commercial leases are often written by a lawyer and are much more complicated than what you might be accustomed to seeing.
When you're reviewing a commercial lease, pay attention to the following:
- Stipulations on how you're allowed to modify the property.
- Rules about signage. You want to be able to get the word out about your business.
- How much of a deposit you're required to put down.
- The length of the lease and any information about how you can get out of the lease early if you need to.
If you have any questions about a commercial lease, consult a lawyer so they can review it and inform you about any potential problems. A bad deal on a lease can affect your business for years to come, so carefully consider all the aspects of a lease before you sign it.