Commercial Lease Agreement: Finding the Space that Works For Your Business

One of the steps needed in establishing a business is having the right space for the office or where the business shall be transacted. Some companies already have a fixed property or location because a partner may have contributed the land or building. But there are also fledgling companies who basically have to start from scratch and a primary concern they would have is where to conduct their business.

A commercial lease agreement is often the perfect set-up for many businesses who are just starting out. It avoids the hassle of having to buy and own a real property, instead, business owners can opt to rent commercial space.

Categories of Commercial Real Estate

There are different categories of commercial real property which you may opt to lease, depending of course on the need of your business:

• Office – Rent for office space only.
• Retail – Often involves lease of retail projects like shopping centers, stores
• Warehouse – It is often a lease for storage of goods.
• Ground – Lease for a certain location or site.
• Mixed Use – This can take on various aspects of other categories of commercial lease greatly depending upon the various inclusions and the size of the overall project, among other things.

Advatanges of Lease Over Ownership

So now that you know what kind of space you can use, what are the advantages in actually entering into a commercial lease agreement? Here’s a couple:

• A commercial lease property would consume less capital than buying a property. If a business has limited capital, commercial leasing would enable it to grow more rapidly as there is less costs.
• Leasing would shift risks to the lessor as capital assets may fluctuate in value. However, if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains.
• New businesses are formed because of investments which are gained from with leasing, which also in turn, increases employment opportunities.
• Leasing affords business owners the chance to be more flexible. Business which may grow or need to move may do so after the expiration of a lease as a lessee is not usually obliged to renew a lease at the end of its term.
• A lease is a practical option for a lot of small businesses who wish to have a large office building within tight locational parameters.
• The depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Since lease payments are considered expenses, this can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period.

Commercial Lease Contract Terms

Now that you’re convinced a commercial lease contract will work best for your company and you know the kind of space you need, before entering into a commercial lease agreement, make sure you read thoroughly the terms of the contract and pay attention to the following provisions:

• Commercial Lease Terms – This is the length of the lease you will be taking, when it begins and the renewal options.
• Rent and price escalations - Inquire whether your rent will include insurance, property taxes, and maintenance costs (called a gross lease); or whether you will be charged for these items separately (called a net lease).
• Security deposit
• The exact space and facilities to be rented.
• Stipulations regarding the build-outs and fixtures as to who will own them after the lease is terminated.
• The maintenance and repair of the premises.
• Whether either the lessor or lessee may sub-lease or assign to another tenant.
• Requirements for termination of lease.
• The provision for arbitration or mediation in case of disputes.