Understanding the Commercial Lease Process in 6 Steps
A successful commercial real estate lease is the result of meticulous research and skillful negotiation. It has clear terms, mutually beneficial agreements, and competitive rental rates. The best CRE agreements have responsive landlord-tenant communication and effective dispute resolution. It sounds straightforward. Yet the intricacies of lease terms, the legal language, negotiation processes, and potential hidden clauses can be overwhelming. This article explores the commercial lease process and the significance of negotiation in securing a successful commercial lease agreement. It looks at the strategies and best practices to help investors secure the best property deals. It also covers the critical role of a tenant representative.
Know Your Commercial Lease Options
There are a few types of commercial real estate leases available. These variations exist to accommodate the different needs and preferences of landlords and tenants for occupancy. The three main types are gross leases, net leases (and variations), and modified gross leases. Investors and tenants should familiarize themselves with these options before completing a property search.
CRE lease knowledge helps you make better-informed decisions and reduces the likelihood of disputes and misunderstandings. Alternatively, securing an experienced CRE broker to negotiate and navigate lease terms, obligations, and potential financial implications on your behalf can help ensure the process doesn’t become a headache for you.
Now let’s review the six steps involved in the commercial lease process.
The Commercial Lease Process in 6 Steps
The process of seeking a CRE lease varies between property types, property owners, and agents. However, the steps below provide a good foundation for all commercial leases.
#1 Determine Your Specific Needs
Ensure you have a clear idea of your commercial property lease specifics from the outset. There are four critical considerations: location, square footage, must-have amenities, and budget.
Prepare to compromise, as finding a property or potential tenant that checks every box is rare.
Location: Consider the local infrastructure, accessibility, local affinity to target market, competition, demographics, and zoning regulations.
Square Footage: The property needs to meet current space requirements and have room for tenant expansion if needed. Also, consider the layout efficiency, scalability, and zoning restrictions.
Must-have Amenities: Separate must-haves from would like to have. This list is subjective, of course. But lessees most often seek adequate parking, reliable internet connectivity, and appropriate security measures.
Budget: Consider rent, maintenance fees, operating costs, property taxes, and building insurance when creating a budget. Understanding the different types of commercial leases will help you plan a leasing budget that accurately reflects these and other miscellaneous costs.
#2 Search for Available Properties
Once you know your specific needs, it’s time to begin the search. However, creating a CRE shortlist is no small feat, especially for new tenants or inexperienced investors. In comparison, established CRE firms have a broad pool of industry contacts to tap. Moreover, they are constantly watching the market and have their thumb on the pulse of areas that are growing and offer the best CRE property opportunities for years to come.
Searching for commercial properties without an expert can quickly leave new investors, business owners, and franchisees struggling to swim in the deep end of the pool.
LiNC Commercial Realty, Experts in the DFW CRE Market
LiNC Commercial Realty understands the complexities of commercial real estate. We’re a full-service CRE firm specializing in the Dallas-Fort Worth market. Our professionals are your advocates and subject matter experts, ensuring you reach the best possible lease terms. Whether you are a CRE tenant or owner, our unwavering commitment and exceptional service help you achieve your commercial property goals.
With a shortlist of potential properties identified, it’s time to schedule your commercial property tours. Visiting potential properties in person gives you a better sense of space and features than online viewing. Out-of-town investors should consider partnering with a CRE firm who can visit potential properties in person with an experienced and critical eye.
A real-world property visit also provides an excellent opportunity to ask the owner, leasing agent, or potential tenant questions, so prepare yours before the meeting.
#4 Negotiate Lease Terms
Quality CRE property doesn’t stay on the market for long. Prepare to strike while the iron’s hot when you find a property that meets your specific needs. And don’t let leasing agent fees put you off, as CRE realtors are masters at negotiation who bring far more value to the negotiation table than they will potentially cost you. They are much better qualified to secure the best deals and will often save you money by the close of negotiations.
Seven important factors that go into negotiating CRE leases include:
Rent and future rent increases
Lease length and options
Security deposit and other fees
Maintenance and repair costs and obligations
Responsibilities for improvements and alterations
Space use restrictions
Negotiations for commercial leases vary depending on the type of contract and other factors. The point is to ensure the final agreement is meticulous and precise.
#5 Review & Sign the Lease
Take time to review a complex lease before signing it. Scrutinize the document for unfavorable lease terms, potential misunderstandings, liability clauses, termination requirements, and predatory fine print. Only sign the new lease once you and your legal representation are 100% satisfied with the negotiated terms.
Better still, have your agent representative review it once more for good measure and explain anything in the terms that are leaving you unsettled.
#6 Submit Security Deposit
The penultimate step is to pay security deposits and the first month’s rent. Depending on the lease agreement, new tenants may need to submit other payments, such as the last month’s rent. Once settled, the landlord will hand over the keys to the space to its new tenant or owner representative.
That’s it; you can now move in and prepare the property for your business needs.
Summing Up the Commercial Lease Process
Commercial leases can offer stable income, long-term appreciation potential, and secure premises to conduct business. All commercial lease types and their variations have advantages and disadvantages for investors and business owners dependent on their situation. What works best for you depends on several factors, such as duration, type of business, budget, location, and space requirements.
To ensure your next commercial real estate leasing experience is a success, partner with a CRE firm experienced in the local market. The steps involved in the commercial lease process need a high level of local knowledge, careful planning, and skilled negotiations to make it a success for all parties.