I spend a lot of time blogging about commercial real estate investing, but a friend of mine mentioned to me today that I don't spend enough time talking about leasing commercial space. So I've decided to write at least one post about leasing each week. Today, I'm simply going to introduce 8 basic clauses that are necessary to understand if you're interested in leasing commercial property in Reading, PA. I'll try to go into more detail on each in future blog posts.
- Base Rent- This is the most heavily negotiated points. Those of you who have studied negotiating probably understand the importance of a BATNA (Best Alternative To a Negotiated Agreement), and this is one area where a commercial agent can be very helpful. If you are negotiating your Base Rent, but you don't know what the comparables are, you are in trouble.
- Additional Rent- Many commercial leases require the tenant to reimburse the landlord for certain operating expenses. It is important to know what expenses are typical in your market, and for your property type. Additional rent form office space is often much different than it is for retail or industrial property.
- Term - Is it in your best interest to have a short term lease, or are you better off locking in today's rates for the long term? What is typical in your market?
- Extension Options- If you're a tenant you definitely want the option to renew your lease at the end of the term. If you've taken the time to build a business in a certain location, you don't want you landlord to be able to artificially raise the rents because you're stuck in that location.
- Tenant Improvements - It's common for landlords to spend money to change or improve a space for a tenant, but sometimes the expense falls completely on the tenant. Often higher Tenant Improvements (TI) costs can be traded for higher rents.
- Use - Are you allowed to use the space however you'd like, or are there restrictions on your use. For example, are you allowed to use your office space as a medical office? The answer will change from one place to another.
- Go Dark Clause - Are you required to operate your business during normal business hours? Are you allowed to close in the off season? Missing a Go Dark clause in your lease can be very expensive.
- Termination Option- If things don't work out, will you have to pay your lease for the entire term? Is there a defined fee that you can pay to terminate your lease? What is common in your market?
Hopefully this list will help start thinking about all of the things you should consider when leasing commercial real estate. Please feel free to comment below or send me an email if there is a specific point you're interested in learning more about.