As the saying goes, “only fools rush in” - and when considering taking out a lease on a commercial property, it would certainly be foolhardy to move too quickly without obtaining the right information.
From which building services are included in your agreement to what happens if you wish to renew your lease, knowing the right questions to ask prior to signing a commercial lease agreement can help to avoid all kinds of headaches in the future.
1. Who is the landlord?
Firstly, find out whether your landlord is a private individual, a small independent, or a larger institution like a bank. Knowing the type of landlord will help prepare you for future dealings regarding the space; large entities may mean slower processing and decision times, while smaller institutions or private landlords will tend to be more accessible and available.
It’s also good to know how much experience your landlord has. Those that have been established for at least ten years and have held the property for a long period will generally be more knowledgeable about the space and the area, while less-experienced landlords - particularly those who still have building mortgages - may not be as well-informed and could be charging higher-than-average rents to cover their costs.
2. How much is the rent?
While this may seem like an obvious question, comparing rental prices can be complex when different rental calculations are used. For example, are you on a gross lease (a flat monthly fee), a net lease (where you pay a proportion of taxes in addition to a base rent), or a percentage lease (in retail situations, where a fixed rate is paid plus a percentage of gross income)?
Another important consideration is how much the rent will increase by. This increase may be incorporated into your lease in regular increments or passed on through increases in taxes, utilities, maintenance or other direct costs. Negotiating how these escalations work prior to signing your lease can help to avoid spiralling costs down the line.
3. What are the terms of your lease?
As they say, the devil is in the details. Knowing exactly what your lease stipulates in terms of aspects such as sub-leasing and termination is crucial in preparing you for potential future scenarios and changes to your circumstances.
Let’s say you’re mid-way through your lease and decide you need to move to larger premises - what kind of sub-leasing arrangement is permitted and how does this work? If the onus is on you to find a suitable candidate, how open is the landlord to different types of occupants?
Similarly, what happens at the end of your lease should you wish to renew? There may be a renewal agreement in your lease that gives you first rights to the space when your lease expires, whereas some leases renew automatically unless you proactively cancel.
It’s also important to establish whether there is an “out” clause in your agreement, stipulating the terms that enable you to terminate the lease should your business outgrow the space or circumstances force you to cease operations.
4. What’s included in your lease?
Having a handle on the ‘nitty-gritty’ of the lease - such as who pays for what and who’s responsible for various maintenance requirements - can save a lot of hassle down the road. Here are some of the areas you may want to consider:
- What building services do you get?
This can include things like electricity and heating, ventilation and air condition (HVAC), as well as cleaning services for the building. Establish what services are included as part of your lease agreement so you’re aware of what’s covered and what you’re liable for.
- Who’s responsible for maintenance, repairs and improvements?
If something goes wrong with the property, you don’t want to get caught out assuming the landlord is responsible for covering the cost of repairs. Similarly, establish what happens in the case of improvements such as painting, new carpets etc. - is the landlord happy to cover these costs or is this split between you?
- Who pays for insurance?
While landlords are generally required to take out cover for the building and common areas, it’s important to know what you are responsible for as a tenant. Aside from the contents of the property, this may extend to incidents occurring as a result of your business operations.
5. What is the infrastructure and history of the building?
Do your homework on the building itself so you can weigh up potential risks and costs that may arise during the course of your lease. Older buildings may require major renovations and more frequent maintenance, so consider this when choosing a property and negotiating the terms of your lease.
Be sure to find out whether there are any upcoming building works in the pipeline for which you may be liable for - particularly if these involve significant renovations that will be costly and/or disruptive to the running of your business.
6. What was the experience of the recent tenants?
No one knows what it’s like to occupy a space better than the recent tenants, whose experiences can provide invaluable insights and pertinent information. In fact, this is the main reason we created Property Reviewed - to make it easy for property seekers to gain genuine feedback from tenants in order to make an informed decision.
You may be able to speak to the tenants directly, in which case be sure to ask any relevant questions that may assist you in negotiating suitable terms for your lease agreement.
Alternatively, if you’re currently searching for a property, use Property Reviewed to read unbiased reviews from verified tenants on their property experiences. Click here to find a property and get started.