If you have made the decision to bring your dream of owning your own small business to life, you may now be looking for the ideal space to lease for your business. You’ve leased apartments or rental homes before so this shouldn’t be much different right? Wrong. Commercial lease laws bear little resemblance to their residential counterparts. Likewise, the process of locating commercial property and negotiating a lease agreement is often very different from the residential rental process. Laws relating to the lease of commercial property will vary somewhat from one state to the next; however, there are significant commonalities. Understanding some of the common mistakes and pitfalls that befall first time commercial tenants may help you avoid them.
Locating A Property: Unlike locating a residential property, which is often done without an agent, you may wish to use one to locate and negotiate a commercial lease. Aside from having access to properties that may not be advertised to the general public, a Real Estate agent should be able to explain any confusing or foreign lease terms, and prevent you from being taken advantage of as a first time lessee. There may be a direct cost involved; however, it could also be indirectly covered by the landlord through his or her agent’s fee.
Lessee Beware: The old saying “Buyer beware” applies to commercial leases. In most states, there are numerous laws that afford a residential tenant certain protections and defenses in a lease agreement, even if they are not specifically enumerated in the agreement itself. This is not the case in commercial leases. Lawmakers assume that commercial tenants are more experienced and, therefore, not in need of additional protection. As a result, the terms of your lease control your agreement. If it is not in the lease itself then it does not exist. Consider having your attorney review the lease before you commit to the agreement.
Lease Terms: There is no industry standard for commercial leases; however, there are some lease terms that are typically different than those found in residential leases. Commercial leases tend to be for longer periods of time — two years and up. Rental price is often based on usable square feet as well as a percentage for shared space, such as a parking lot or lobby, if applicable. As a commercial tenant, you may be responsible for minor repairs. You may even be responsible for major repairs. On the plus side, as a commercial tenant you will likely be able to make improvements to the property, unlike in a residential lease.
If you are searching for an accountant that understands real estate accounting backwards and forwards, call Morey and Associates CPA at 949-759-5626 and ask for Jerry Morey.
Morey and Associates works with all types of businesses in Orange County that need additional expertise with real estate accounting and tax matters.