The Paradise Mall

Introduction

Renting commercial property for a business is an exciting time, but it also requires thorough planning and preparation. Finding the perfect location, negotiating favourable lease terms, and anticipating costs and growth needs are all critical parts of the process. This checklist covers the key factors to evaluate when renting a commercial property so you can make the best decision for your business.

Things to Consider Before Renting Commercial Property

Plan for Foreseen and Unforeseen Costs

When budgeting for a commercial space, be sure to account for predictable expenses like rent and utilities as well as unexpected costs like maintenance, repairs, and build-out expenses. Also factor in initial investments like security deposits, insurance, and taxes. Planning for unforeseen costs will help avoid cash flow issues down the road.

Research Potential Locations

Look at a variety of locations and weigh the pros and cons of each option. Drive by at different times of the day to evaluate traffic, parking, noise levels, and any other factors that could impact your business. When renting commercial property, it is important to look into zoning regulations and whether surrounding businesses complement yours. Choosing the right location is key for visibility and access.

Determine Lease Duration 

Carefully consider whether a long or short-term rental makes more sense for your situation. Longer leases often provide more favourable terms but less flexibility. Short-term leases provide more agility to move or expand but may have higher rates. Evaluate projected business needs and growth plans when deciding on lease duration.

Evaluate Necessary Square Footage

Determine how much space you need for all business operations, including inventory storage, equipment, employee workstations, customer areas, and growth room. Overestimating can lead to higher rents for unused space while underestimating can cramp operations or limit future expansion. Tour a variety of spaces to get a feel for the required square footage.

Consider Neighboring Businesses

Research who is located near any potential commercial property. Complementary or non-competing businesses can increase foot traffic while nearby competitors may detract. Also, look into whether neighboring tenants could impact parking availability for your customers or employees.

Allow for Future Growth

Leasing too much space upfront can be costly but failing to account for business growth can be limiting. Look for spaces that provide room to expand or options to lease additional space within the same property. Also, consider scalable features like modular walls or furniture to accommodate future hiring or inventory needs.

Checklist for Renting Commercial Property     

Beyond the big picture factors above, there are many details involved in evaluating and negotiating a commercial lease. This handy leasing checklist covers key items to review:

Lease Length

When reviewing lease terms, look at the overall length of the initial commitment which typically ranges from 3-5 years. Also, find out if there are options to renew the lease at the end of the term to provide more long-term security. Having a lease term and renewal options that align with your business plans is important.

Rent Cost

When reviewing rent costs, be sure to factor in the total monthly or annual base rent amount. Also, consider if the lease includes percentage rent or gross sales rent based on your revenue. Find out if there are common area maintenance fees for shared spaces and what taxes and insurance costs are included. Finally, check if the landlord can increase rent annually and by how much. Understanding all these elements will give you a full picture of the total rent expenses.

Incentives from Landlord

Look into any commercial incentives the landlord may offer such as a free rent period at the beginning of the lease term. Also, ask about a build-out or tenant improvement allowance to help cover the costs of customizing the space. Finally, see if the landlord is willing to cover any moving expenses associated with relocating your business to the new space. Negotiating these types of incentives can provide significant cost savings and benefits when renting commercial property.

Additional Fees

Be aware of any additional fees beyond just the rent, such as a security deposit that may be required upfront. Find out if there are penalties for early termination of the lease if your needs change. Ask about costs for parking for your employees or customers, as well as any fees for building signage. Making sure you understand all the additional fees can prevent surprise costs from creeping up later.

Operating Expenses

Understand which operating expenses are included in the rent and which ones you’ll be responsible for covering. This may include utilities like electricity, water, gas, and phone/internet service. Also, find out who covers waste disposal and snow removal costs. Determining responsibility for operating expenses is important for accurately budgeting carry costs for the space.

Thoroughly Assess Expansion Plans

When evaluating commercial spaces, think about your future growth needs. Look for a space that provides room to expand your operations over time. Negotiate for an option for the right of first refusal on adjacent spaces in the building becoming available. Also, make sure the lease allows you to sublease extra space if you need to downsize. Having the flexibility to accommodate the evolving needs of your business is extremely valuable.

Conduct Due Diligence 

Make sure to conduct thorough due diligence before signing a rent agreement. Hire a commercial real estate lawyer to review the terms to protect your interests. Inspect the space carefully for any needed repairs or renovations. Verify compliance with local zoning, permits, and other requirements. Also evaluate the safety and security of the area, including reviewing crime statistics. Taking these steps as part of your due diligence will help avoid costly surprises down the road.

Tips for Signing a Commercial Renting

Don’t gloss over the fine print – read the lease thoroughly and clarify any ambiguous terms. Hire a commercial real estate lawyer to help negotiate favourable terms. Create a checklist of must-have features like signage rights, renewal options, and exclusive use rights. Clarify responsibility for maintenance, repairs, and build-out costs. Look for hidden fees and penalties for non-compliance. Secure a strong personal guarantee if possible.

Vital Components of a Commercial Renting

There are certain clauses that every commercial lease should contain:

• Parties involved
• Description of premises
• Permitted business use
• Lease term length
• Rent rate and increases
• Security deposit and financial terms
• Maintenance and repair responsibilities  
• Insurance requirements
• Default and termination provisions
• Expansion, renewal, and extension options

FAQs

Questions to Ask When Renting Commercial Space

When renting commercial space, ask about the lease type, minimum term, included amenities, required insurance, parking allotment, potential for expansion, and layout customization. Getting clear answers to these key questions upfront will help determine if the rental is a good fit.

What are the best commercial tenants to have?

Commercial landlords should target stable, reliable tenants like auto parts stores, convenience stores, dental and medical offices, drug stores, and urgent care clinics. These types of essential businesses tend to sign longer leases and provide consistent revenue. Pursuing tenants in these sectors can help minimize vacancies and hassles for landlords over time.

What should be included in a commercial building?

Commercial buildings are properties used for business operations like offices, retail, warehouses, and industry. Commercial property also includes multi-unit residential apartments. The key difference is commercial buildings cater solely to business needs, while commercial property covers both business and residential rentals.

Conclusion

Renting commercial property requires careful planning and attention to detail. Following this comprehensive checklist will help you find the ideal space for your business at favourable terms. Thoroughly evaluating your needs and negotiating the best deal will lead to long-term success and growth for your company. What key factors do you consider when renting commercial real estate? Let us know in the comments!