Commercial Leasing Concerns for Real Estate Agents by OntarioRCI

There are a few things that need to be considered if you are interested in Commercial Leasing.

The first consideration is that of the lease term. A commercial lease can run anywhere from three to ten years and is typically negotiable. When determining a lease term the commencement date is just as important as the expiry date. If the space to lease is not already vacant, issues may arise with the current tenant. For example, they will not move out; construction isn’t finished on time; disagreements arise about whether the tenant can gain access early to install fixtures or make improvements. The lease should stipulate what will happen if the space is not ready by the move-in date.

An important factor is the rent, which is a fairly inflexible part of tenant overhead. Commercial rents generally come from an annual cost per square foot of the space, but there are at least five common ways to calculate rent. Gross Rent is the most common and is a fixed monthly amount and the landlord is responsible for all expenses of operating the building including taxes, repairs etc. Net Leases requires the tenant to pay for some or all of the real estate taxes in addition to their base rent. Net-Net Leases require the tenant to pay for some or all of the real estate taxes plus the insurance on the space they are occupying. Net-Net-Net or Triple-Net Leases are usually written only for industrial properties and basically pass on all costs of operating the building to the tenant. Percentage Leases are a type of rental arrangement that applies to retailers. In a percentage lease the tenant pays a base rent plus a percentage of gross income. Rent may go up and in that case it is outlined in the escalation clause of the lease agreement.

]]>

A sub-lease can arise if a tenant is progressing through the lease term but for whatever reason, needs to leave. In this case the tenant needs to come up with another tenant to take over the lease. This tenant must pass credit assessments and be deemed reasonable by the landlord.

Insurance is an issue that does not get enough attention. Landlords in general are expected to carry a policy on the building that covers liability for common areas. They also have the right to insist that tenants carry their own insurance. A good resource is a professional insurance agent or lawyer.

Improvements on commercial space are a negotiable aspect of the lease agreement. If tenants can persuade the landlord that work may be a good selling point for future tenants, the landlord may agree and finance the work. Any agreements about improvements should be put in writing with documented costs etc. before the lease is signed.

This knowledge is paramount but not all-encompassing of what may be expected in a lease agreement situation. If you are considering a commercial lease and aren’t sure where to start, contact a Realtor who has sufficient knowledge of the rental climate in your area and can ensure mutually satisfying lease agreements.