One of the most important things for some small businesses is the location of their business. Prime commercial real estate often costs more than what a small business owner is willing to put up when they first open their business. As a result, many small business owners decide that they’re going to lease a property instead of purchasing one.
When a small business owner is first looking into commercial properties, they may notice there are a lot of things that are different about the lease than what they’ve encountered in residential rentals. A commercial lease structure influences everything from the monthly expenses and maintenance responsibility to the long-term stability in a specific location.
The flexibility of commercial leases can be surprising
Unlike residential leases, commercial leases are highly flexible. Terms are often negotiated on a case-by-case basis, reflecting the property type, the local market conditions, and the bargaining power of each party. It’s important to review a commercial lease to determine the length of the lease, what operational costs are handled, and what renewal options are present.
One of the most common sources of confusion in a commercial lease is what expenses the tenant is responsible for. Insurance, property taxes, and maintenance are expenses that may be included in the lease price, but there are some instances in which the tenant will be responsible for them.
Commercial leases are often called net leases. The number of nets in the lease determines exactly what the tenant is responsible for paying. In a single net lease, the tenant would only be responsible for paying one of those expenses. In a double net lease, the tenant is responsible for two, and in a triple net lease, the tenant is responsible for all three.
Small business owners must understand exactly what terms they are agreeing to when they sign a commercial lease. It may be beneficial for them to work with someone who can assist with reviewing the lease and ensure that their business will be protected by the terms.