Signing the commercial lease contract is a crucial point when venturing into a business. If done without reasonable steps, a badly inspected agreement can cost you a hefty amount which can take a toll on your business.
Below you will find the questions that you must ask before signing a commercial leasing contract.
What to Ask Before Signing a Commercial Leasing Contract
1. How much is the rent?
A commercial space for rent is generally priced by annual cost per square meter of space. There are, however, different types of leasing arrangement that the landlord is imposing:
- Gross Lease is paid at an exact amount per month.
- Net Lease includes real estate taxes plus the base rent.
- Net-net Lease adds insurance to taxes and base rent.
- Triple Net Lease adds maintenance and repairs to insurance, taxes and base rent.
- Percentage Lease is common in malls and shopping center. Tenant pays a fixed rate plus a set percentage of gross income.
Lastly, you want to make sure that there is no hidden cost included in your commercial lease contract.
2. How long will the lease run?
Be mindful of how long your lease will run as stipulated in your agreement. The duration of your lease is always negotiable. You don’t want to be caught in a dilemma where you have to close the business, but the lease is yet to expire. This will also be a problem when there is already a need to move to a bigger space but you still have to wait for the expiration of the commercial lease agreement.
3. Can I sublease?
After securing the ideal duration to lease the commercial space, ask the landlord if you can sublease the space. This matters especially in case you find yourself tied to your commercial lease agreement, but have to move your business, or when the space is too much for you.
4. How much will the rent go up?
Ask about the escalation clause. It’s imperative to know how often and on what basis the rent goes up over the course of the lease period.
5. What building services do I get?
Consider the facilities and utilities that are included in your commercial lease contract that includes the electricity, water supply, cleaning services, etc.
6. Who are the current tenants and who else can move in?
You want to know the current tenants in the property and more importantly who is the biggest tenant that can make or break the success of your business. Also you have to know if you can negotiate having the right of first offer or first refusal to keep competitors at bay.
7. Can I remodel and renovate my commercial space?
The time will come when you will find it necessary to remodel the place to suit your brand’s identity. As such, make sure to negotiate a clause that gives you the permission to make improvements and alterations to the space. Also, be careful not to sign a commercial lease contract that requires you to renovate and return the space to its original condition once the lease ends.
8. How secure are my tenancy and rental rate?
Your best option is to find a landlord that gives you the option to renew or extend the commercial lease contract and cap any increase in rent to only a reasonable percent.
9. Who’s responsible for insurance?
Landlords commonly secure a general liability insurance for common areas in the property including the lobby, stairs and elevators. You have to know if they will require you to secure your own insurance to protect them from any liability that may arise as you carry out your business.
10. What happens if your landlord goes broke?
Look for the Recognition/Non-Disturbance clause in your commercial lease contract so you will be protected in case the property is foreclosed before the termination of your contract.
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