Commercial Leases and Zoning
Business owners can either rent or purchase real estate for their business activities. You need commercial property whether it is a retail shop, manufacturing plant, office building, or warehouse. Before signing a lease agreement, you must know some basic steps. FindLaw's Commercial Leases and Zoning section gives you tips on:
- Understanding zoning laws
- Finding the right location
- Negotiating a lease agreement
- Choosing a geographical location
- Commercial lease provisions
Types of Leases
Commercial leases vary based on the type of business, the business location, and the terms of the lease. Commercial leases differ from residential leases because the lease terms are based on the property's total square feet. Some leases may include income or property taxes as part of the rental price. Some common types of leases include:
- Flat or Fixed Lease: This features a single rental price for a set period of time. Flat leases may be monthly or annual.
- Gross Lease: This offers a flat monthly rent without building operating costs included.
- Step Lease: This a a rental with fixed annual increases. The annual increases may be a percentage of the property owner's property taxes, maintenance costs, or building utilities.
- Cost-of-Living Lease: This is a rental with variable increases based on inflation.
- Net Lease: This is a rental with base costs and rent increases as operating costs increase.
- Net-Net Lease (also called a Double-Net Lease): This is a rental where the tenant pays taxes, building insurance premiums, and base rent.
- Net-Net-Net Lease (also called a Triple-Net Lease): This is a rental where the tenant pays a base rental plus all building operating costs and repairs. These costs are sometimes called “pass-through" costs. They are useful as negotiation points when calculating the monthly rent.
- Percentage Lease: This is a rental where the monthly or annual rent includes a percentage of gross income and a base rental cost.
Leasing or Purchasing a Facility
Small business owners begin by leasing their facilities. Business operations may reach a point where purchasing office space is desirable. The decision between buying or leasing may be easy in some cases, but there are a few things to consider before making your choice:
- On the plus side, leasing gives new businesses an opportunity to develop a market base and a positive cash flow. Leasing lets businesses save money since they will not need to pay the full amount of building maintenance and property taxes.
- New or expanding businesses need the flexibility that renting offers. Even a 10-year lease is short-term compared to property ownership with a 30-year fixed mortgage. A startup may grow faster than expected and need a larger facility only to find that property values have changed and new buildings are unavailable.
- Property owners have the option of leasing the building as an income property. Real estate values may rise and fall, but property always has some value. Business owners can use the value as equity, and depreciation on the building may provide tax breaks.
- Zoning ordinances may change, but owned buildings within a zone are generally granted variances if the ordinance would affect the property value. These variances are less often given to leased businesses with an option to move.
Commercial zoning is one of several types of zoning ordinances that restrict land use within a city or county. A zoning board creates zoning laws, usually in conjunction with the city council or planning commission. Zoning districts keep commercial areas, residential properties, and industrial areas separate. This improves everyone's property values and encourages economic development.
Commercial zoning regulations control many aspects of business operations, including:
- The external appearance of a building, size, height, setback, and landscape or hardscape style can be regulated.
- Signage height and type, street appearance, and acceptable fonts must fall within acceptable parameters. Signs in a strip mall must usually be of similar style, shape, and color.
- Noise levels and total occupancy must not be exceeded. This is especially critical for businesses like bars or nightclubs.
- Consumer protection requirements must be met. Zoning laws may prohibit some businesses within a certain distance of others, such as not permitting adult entertainment establishments near schools or churches.
Zoning requirements change as business and community needs change. A business that was compliant once may no longer comply with new zoning laws. When this happens, the existing business receives a permit to continue operations unless it can relocate or accommodate the new requirements. This permit, or variance, will not pass to the next tenant.
Zoning maps are available online or at your county planning office or zoning board. Before leasing any new building, business owners should ensure their business complies with the local zoning requirements.
Have Questions About Commercial Leases and Zoning? An Attorney Can Help
Starting or expanding your business can be exciting and lucrative, but sometimes finding the space you require can be extremely difficult. Understanding the legalese of a lease can be daunting, and dealing with zoning codes and laws can be a headache. If you're uncertain of what to do next, consider consulting with an experienced commercial law attorney. They can help make sure you get the best lease for your business and aid you in expanding your business.
Learn About Commercial Leases and Zoning
Commercial Leases and Zoning Articles
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.