There are many important issues for a business to consider when its leaders plan to lease commercial property as a tenant. Whether the planned new location will be the only location for the business or a new location to be added to a list of existing commercial properties that are owned or leased by the business, the decisions to be made between the initial discussions and the signing of the lease are crucial to the present and future success and stability of your business.

  1. Location – You have probably heard the old saying that in real estate the three most important things are: location, location, location. Well, there are other important factors to consider, but it is certain that when selecting a commercial property to rent for your business the location of the property is crucial. For one, the business is committed to the location during the term of the lease. That makes it even more important to select the best location which is available and within your budget.
  2. Size and Type – Another important factor that deserves serious consideration is what is the optimal size and type of property for your business, its customers and its efficient operation. What best describes your business operation: high end retail, discount retail, warehousing, manufacturing, etc. and what type of facility is best suited to those purposes? Does your operation need 10,000 square feet or 100,000 square feet? Is foot traffic or drive-by traffic important for getting paying customers in the door? Do your customers come to your location or do you deliver orders or send orders to them? Does your business need ancillary (or primary) quiet and/or semi-private office areas for important matters like bookkeeping, human resources meetings, training and inside sales? Before you begin your search think about what layout and features would be best for an efficient floorplan for your business operation; then be willing to adjust those plans if necessary based on the properties that are available near your desired location.
  3. Future Needs – Do you want to maintain your business at its current size or do you plan to work toward growth and expansion? If your business is in a growth mode or growth phase it is wise to consider, with other leaders at your company, the idea of leasing 10-30% more space than your business currently needs to allow for that future growth during the initial lease term. Alternatively, a tenant may negotiate with the landlord for rights of first refusal or options to lease additional space within the building.
  4. Access – If you plan for retail customers to come to your location is there convenient access for them to get to the sales area? Heavy drive-by traffic can be very beneficial to a business, but not if traffic flows and traffic patterns make it difficult for your customers to get to your business. You might see the terms "ingress and egress" in a lease which refer to access for entering and leaving the location. Should your location have access for large commercial trucks to bring in deliveries and supplies for your business or to take orders to your customers? Do you need multiple loading docks with roll-up doors or a concrete ramp for trucks and vans to drive into the storage area for loading and unloading? Ideally, you want existing and potential customers to be attracted to your new location and you need to confirm that the property allows for the prompt and efficient collection and distribution of materials, equipment, inventory and personnel.
  5. Term – Based upon your future business plans and projections do you want to sign a lease for 2 years or 10 years? It is often a good plan to lease for approximately 5 years with a 2- or 3-year option for the tenant to extend the lease. Many times property owners will give better rental rates and build-out or improvements credits/allowances for tenants that sign longer term leases. A longer lease has risks if there is a downturn in the economy or within the industry that your business operates. These considerations should be weighed and considered against the potential benefit of "locking in" and defining rental costs for a longer period.
  6. Costs – What are the total costs to the tenant during the lease term? Do not think of the lease as just a monthly amount of base rent. You should look at all costs including additional rent or costs and multiply that by the total amount of months during the lease term. For example, a proposed lease with a base rent of $10,000 per month plus additional rent of $1,500 per month for 60 months is equivalent to a decision worth $690,000 of costs to your business over the next 5 years. It can be very helpful to have an experienced, local commercial real estate agent. In many commercial lease deals the commission for the tenant's real estate agent is paid for by the property owner, so you can benefit from the market knowledge and experience of a real estate professional without additional cost.
  7. Who owns the property? – It is important to have a clear understanding of which entity or person owns the property that you are considering to lease for your business operation. Does the property owner manage the facility or is a property management company involved? Does the property owner or property management company have a good reputation with other tenants? It is prudent to have a brief discussion with 2 or 3 other tenants about their experiences.
  8. Maintenance – How will the maintenance costs and responsibilities for the location be divided between your business as the tenant and the property owner? Does the draft lease state that the property owner or property manager will resolve and pay for all building maintenance issues or that the owner will only pay for issues related to the basic structure: like the slab, roof, walls, water main and sewer main? If your business agrees to assume more of the maintenance risks and costs, that can result in a reduction in the base rental rate, but obviously that scenario has some risks for unexpected costs. Commercial leases for most multi-tenant retail centers, office towers and larger buildings include charges for Common Area Maintenance ("CAM") costs. CAM costs are costs incurred by the landlord to operate and maintain common elements of a commercial property such as elevator maintenance, security, landscaping, parking lot maintenance, etc. which are shared in common by all tenants. CAM charges are typically passed through (and paid by) the tenant based on each tenant's proportionate share (based on square footage) of leased space in the building.
  9. Taxes – Your business will be responsible for sales tax for sales generated in the location and for business personal property taxes. Unless your business rents from a governmental entity or other tax-exempt entity, the property owner is required to pay property taxes on the building. Does the property owner plan to pass that property tax cost on to the tenants under the proposed lease? In Florida, the Florida Department of Revenue charges and collects a "sales tax" on commercial rental property even though the property is clearly being rented and not sold. Other states may have special taxes and fees on commercial property. Some business will intentionally locate across jurisdictional lines to save their customers on sales tax. For example, sales tax may be 9% in the city and 6% in the county. That difference can be significant if your customers are purchasing expensive items like cars or electronics. You can discuss these tax issues with the tax advisor for your business.
  10. Other Costs – You should plan to have thorough insurance coverage bound on the date that you take possession of the property. The insurance (at a minimum) should cover your inventory and business personal property at the new location, general liability claims at the location, workers' compensation coverage for the employees at the new location and fleet coverage for any business vehicles operating from the new location. Your insurance agency may also recommend other coverages and it is prudent to contact them to discuss coverage options and coverage changes before you take possession of the new location. Does the proposed lease state that the tenants will pay for the property owner's insurance costs for insuring the building? Carefully consider these costs and all other costs that will be necessary to operate your business in the new location.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.