Whether you own or rent your office space, commercial property costs are one of the largest business overhead expenses. That's why it's important to know the full ramifications of buying your own commercial property or just leasing a space from someone else. Before you sign a lease, you should be working with a commercial real estate broker. Not a residential broker, there is a difference. You should also consult with a real estate attorney. You should also familiarize yourself with some common commercial real estate terms as well, and they are listed below:
1. Build out: Improvements to leased space to make it usable for a particular tenant's needs. now the key here is who is going to pay for this build out, you or the landlord.
2. Appraisal: a written report by a state-licensed professional that includes an unbiased analysis of the property's value and the reasoning that led to that opinion. An appraisal report is required for any property sale.
3. Build-to-suit: a method of leasing property in which the landlord makes improvements to a space based on the tenant's specifications. The cost of construction is generally factored into the lease terms. Most build-to-suit provisions apply to long-term (10-year) leases.
4. Concessions: Rental Concessions are benefits that are offered by the landlord to his tenants. Concessions are usually offered to draw tenants to vacant properties. Some other landlords may choose to offer a concession if the tenant decides to renew the lease.
5. Escalation clause: a clause in a lease that legally allows the landlord to increase rent in increments at set times throughout the lease term. Some examples are: • An increase directly related to increases in operating expenses of the property, i.e. Taxes, Special Assessments. • A cost-of-living increase tied to a government index, such as the tax rate • A fixed increase over a definite period i.e. 6 months, 1 year.
6. A straight lease, which stipulates that the same periodic payment (usually monthly) be made for the entire term of the lease.
7. A percentage lease, which uses a percentage of the net or gross sales to determine the monthly rent. This is most often used in retail properties and with a minimum base rent.
8. A net lease, which requires the tenant to pay maintenance, taxes, insurance and so on, along with a fixed rent. This is also called "net-net-net" or "triple net." As a tenant make sure you know exactly what part of the expenses you are paying for.
Your Commercial Real Estate Broker will be good source of knowledge here as this is what Commercial Brokers do on a day to day basis. That is why is it very important to have people on your team that can advise you in making the right decisions. As you can see from this short list, there is a lot to think about when looking at leasing a space for your business. We have covered the buy side of this equation, which will be in future issues.
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