How to Find Commercial Property to Rent
Finding the best location for your new business takes time and effort. Before you begin pounding the pavement, read FindLaw's information on leasing commercial space. A commercial lease may be the best option for new business because:
- A small business can move when operational needs change.
- Lease terms may be shorter than mortgage terms. In New York, a retail rental may be as little as three years.
- It frees up capital to use in other areas of the business.
- It gives startups time to develop a positive cash flow and customer base.
- Small business owners may not have the credit rating to support a commercial mortgage.
While looking for retail or office space, keep the following tips in mind.
What factors should I consider when looking for commercial property?
Your type of business determines the factors to consider while searching for your property. A clothing store needs storefront retail space, while a law firm may want a prestigious office building. Consider these factors while looking over commercial rental property:
- Location: Location is the most important factor in your leasing process. If your business is not located near your customers, it won't succeed.
- Cost: Take time to learn about the different types of leases. The lease is a fixed cost in your overhead, so ensure you can pay it for the entire rental term.
- Parking or ease of access: Be sure the location has adequate parking for your customer base and your employees. You may have street parking, but are there meters or parking restrictions? If the building has a lot, check if reserved spaces reduce the number of spots. Is your business located in a city with great public transportation, and how far is your store from the train station or the bus stop?
- Physical structure: What is the total square footage? If your business needs deliveries, be sure there is enough space for hand carts. If you want interior offices, confirm the square feet required for interior walls or partitions.
- Zoning: Always confirm the local zoning regulations before signing any commercial lease agreement. Don't assume that the zoning laws will allow you to operate because the current business is similar to yours. Check with the zoning board first.
What are the differences between a commercial lease and a residential lease agreement?
A commercial lease is an agreement between a landlord or property owner and a business owner to rent commercial property. There are several differences between a residential lease and a commercial lease agreement. The differences include:
- Legal protections for business tenants: Separate civil codes cover residential leases and commercial leases. Requirements for security deposits, rental payments, and lease terms are all regulated by other code sections. Courts handle commercial real estate lease legal issues differently.
- Lease agreements: There are several types of commercial real estate agreements. Commercial leases have more terms specific to each tenant. For instance, retail tenants' rent may contain a percentage of the annual receipts. Such leases are more specific to each business.
- Negotiable terms: Commercial leases contain more negotiable points than residential ones. The base rent is the starting point for the lease. Additional amounts depend on the nature of the business and the property. Because a typical commercial rental is much longer than a residential lease, negotiation over terms benefits both parties.
What terms should a commercial lease include?
Some states require a written commercial lease agreement. Even if your state does not, it is a good idea to have any business-related document in writing. Your lease agreement should address these issues:
- A description of the lease space, including the square footage and additional elements, such as hallways and elevators
- The lease term in months (such as 60 months). This allows pro-rating of the rent if necessary.
- Base rent and annual rent increases, if any
- Maintenance costs, including common area maintenance (CAM), waste management, and utilities
- In a gross lease, the tenant pays only the base rent. In the case of a net lease, double net lease, or triple net lease, the lease should describe other charges (insurance, property taxes, and building maintenance).
- Assignment or sublease rights
- Condition upon occupancy if the landlord or property management company has promised renovations or materials for the build-out
Many of these terms and conditions are negotiable, particularly in long-term leases (over 10 years) or leases with options to buy. If you want to stay in a location once you find it, consider hiring a commercial real estate broker to help in your search and a business law attorney to help draft the lease agreement.
How do I learn about zoning for a commercial property?
Zoning regulates the activities allowed out within a district in a municipality. Commercial zoning regulations determine the type of businesses that can occupy each zoned district. Zones include residential, commercial, industrial, agricultural, and recreational. Cities, counties, and municipalities enforce zoning ordinances in coordination with the city planning boards. There may be areas of mixed-use. For instance, a residential area may have small pockets of commercial and light industrial zones.
You can find applicable zoning ordinances by checking with the zoning board or city planning office. There may be other areas of local government that handle zoning issues. Find out whether regulations restrict the number of similar businesses allowed in a specific area.
Getting Solid Legal Advice
The bottom line is that looking for the right commercial property takes time and know-how. When it's time to negotiate your monthly rent, speak to a business and commercial law attorney in your area. Put their expertise to work for you and your future success.
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