Negotiating Commercial Leases and How We Get Our Clients Better Terms
Hey, everybody Sunny with Synergy Real Estate and Property Management here in Bakersfield, CA. today We’re going to go over commercial real estate. It’s kind of a hot topic right now especially with COVID and bankruptcies with retail companies and office spaces. This could be very lucrative for people looking to purchase their own commercial property and to lease properties moving forward. We want our clients to get good terms on their leases. Lets go over the basics of how a commercial lease generally works.
Length of the Lease
One of the main points is going to be the term of the lease. A lot of landlords are looking for longer term leases. If you’re a brand new business looking to start, most of the time, you’re looking to tie yourself into a contract for as little time as possible. In some cases, some people want to be month to month.
However, the landlord is looking for someone who is stable. Even if it is a new business the landlord is going to be looking for someone who is bringing stable income. In a commercial setting it makes more sense to be leasing to someone who is making plenty of income so the landlord doesn’t have to worry about evicting a tenant if they run out of money. As far as the term of the lease most landlords are going to want to see multi-year leases.
Basically the more secure you can make it as a tenant the better it is for the landlord.
Type of the Lease
The second point would be what kind of lease it is. Is it a gross lease? Is it a triple net lease?
A lot of businesses, especially the new ones, are looking at properties for their business and thinking they want to be paying $1500 flat like it’s a house payment. However, you have to take into account, in commercial real estate there are a lot of different factors. For example, janitorial and utilities. Those things can be taken care of by the landlord but are often included in the rents. So we want to see what it is you need and what you are getting and try to mash the two together.
From there you can make the choice of how you are going to structure your lease agreement. For example, in the office space if we’re looking at office buildings a lot of the leases become triple net leases. This means the tenant is helping the landlord pay for property taxes, the ongoing maintenance, etc. on the property. What that does for the landlord is make the profit flow on through to them from the rents. But as a tenant you have to be careful because those expenses can get out of control if the property is being mismanaged and that will come down to you as a tenant to take care of those expenses. So that’s something to peak behind the curtain at, so to speak.
Possessions of Property
Another thing we want to talk about is possession. A lot of these landlords are looking to release the property and give you the keys on the first of the month. In that scenario, theoretically, the landlord loses the least amount of money being that the day you move in is the day rent starts. However, in a commercial setting when you open a business there are a lot of things that have to be done. For example, if you need a specific floor plan for your business but you’re going into a vanilla shell building they’re going to have to build that whole thing out.
On top of that, once this floor plan that you need is built then you need to have your finishes, desks, and furnitures installed and then you can be operational. Then you have signage, business licenses, and all kinds of things that aren’t even tied into your physical location that you need to have to run a legal business. Therefore, it could be more beneficial to you as a tenant if you can take possession of the property sooner than the rent will start because that will allow you some time to take care of what you need to take care of and get your business up and running so you can start making money as quick as possible without having to pay the rents. That’s something we definitely want to look at when looking at the leases as well.
Exclusivity of Product
Finally, something really basic that I want to go over is we want to make sure if you become a tenant for commercial property and you’re looking at a multi tenant building it will behoove you to have the exclusive for what your business is. For example, there are a lot of automotive industrial centers in Bakersfield that have competing businesses. Competition can increase between these tenants and that can lead to some problems between the tenants.
We want to make sure if you say, own a tobacco store, that your exclusivity for that right to own a tobacco store is going to be protected so you’re not going to have to deal with other businesses that are coming in and take market share from your product in your same physical location.
Those are a couple different things to consider when looking to rent a commercial space.
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