Before you sign a Commercial Lease, Read This…
https://youtu.be/U3xFLKtbj4Q
GET AN INSPECTION…
I know, I know, typically you hear getting a Property Inspection come up when purchasing a building! BUT, getting one prior to signing a lease could possibly save you a head ache in the future. Imagine not noticing the ceiling is nearly caving in due to water damage (like in the video we shared above) you could be so in love with the space you look completely over it!
Having someone who is not biased come in to take a look could possibly give you a heads up on what could be or become an issue in the future! This can even be a negotiation tool if they won’t take on certain repairs maybe you can find a different way to be compensated and still move forward. Such as getting additional time for your build out before making payments or a lower monthly payment over time. Also if your scared they’ll find another Lessor consider putting a Purchase Agreement in place that could possibly “Hold your Spot” while you finish Inspections. Typically you see Realtors provide Purchase Agreements but there are ways you can get your own if you are handling the process alone just seek any help that is needed or required with that.
READ THE LEASE…
It seems so simple right, but some people sign without reading!! Imagine you signed, didn’t get an inspection and the roof caves in and your not sure who is responsible to make the repair. Imagine the Landlord being responsible but they aren’t moving promptly to do the work causing your business to stay closed or not to be able to even open! That could turn into a horrible situation if that is your only source of income.
Reading the lease could at least possibly give a heads up on how these type of situations could play out. Even seeing if there are deadlines for the landlord to make the repair before you can cancel the lease or maybe be compensated for the time/business loss. But on the other hand imagine not reading the lease and you agreed to make ALL repairs… you’d have to get ready to pay up. Understanding some of the different lease types could even be helpful! For example a few are, Single Net, Double Net and Triple Net Leases in the Commercial Real Estate world.
As Shared by Investopedia
” Single Net Leases
Single net leases are often referred to as a net lease or an “N” lease. In addition to a rent payment, the tenant pays property taxes. All other expenses, such as insurance, maintenance, repairs, and utilities, are the landlord’s responsibility.
If the tenant fails to pay the taxes to the local municipality, the landlord is held accountable. Many landlords include property taxes in the rent payments so that payment passes through them to ensure taxes are paid on time and correctly.
Double Net Leases
Double net leases, called net-net leases or “NN” leases, are common in commercial real estate. The tenant pays property taxes and insurance premiums in addition to rent. The base rent is generally lower because of the additional expenses the tenant bears. All maintenance costs are the landlord’s responsibility.
In commercial developments such as shopping malls and office complexes, tenants may rent space with varying square footage. Landlords assign taxes and insurance costs to tenants proportionally based on the amount of space leased. As in single net leases, the landlord is ultimately responsible for the tax and insurance payments and may have the tenant pay these expenses to the landlord directly.
Triple Net Leases
The triple net lease (NNN) passes the costs of structural maintenance and repairs to the tenant in addition to rent, property taxes, and insurance premiums. Since additional expenses are passed on to the tenant, the landlord commonly charges a lower rent.
When maintenance costs are higher than expected, tenants under triple net leases frequently attempt to get out of their leases or obtain rent concessions. To avoid this, many landlords use a bondable net lease that cannot be terminated before its expiration date. The rent amount cannot be altered for any reason, including unexpected and significant increases in ancillary costs.
Important: Landlords may use a bondable net lease to avoid a tenant’s potential to end an expensive triple-net lease.
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