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The right commercial lease for your business

When starting a business, every contract and every deal makes a difference. Once of the most significant deals is the lease on a property. While most entrepreneurs already know how residential leases work, commercial leases are more complex and come in many different structures.

For the most part, residential leases are standardized. In the commercial realm, there is too much variety for that to work. Different business types, different zoning restrictions and different buildings each have unique needs and uses.

Beginner basics

It’s not complete by any means, but Forbes divides commercial leases into four categories:

  • Single net/net lease
  • Net-net/double net lease
  • Triple net lease
  • Full service gross/modified gross lease/modified net lease

The primary differences in each of these categories is who covers expenses and when. In many cases, the landlord covers maintenance while the renter is responsible for utilities and taxes. However, there are many different arrangements, especially considering building improvements and common areas.

Vital topics for the lessee

While awareness on repair, upgrades and disaster responsibility are key parts of a lease, Forbes also mentions two common problems that first time commercial renters experience.

Rubber rulers – This term refers to renting a space by the square foot without verifying the accuracy of those measurements. Many landlords reuse language from other leases, and miscalculations can cost a business significant funds.

Escalation clauses – An escalation clause stipulates how the landlord will cover expenses in a long-term lease. Build costs change and tend to increase over time. Renters need to beware of the escalation clause for their long-term success.

The right fit for your business

The complexity of commercial leases makes them harder to dissect, but it can also be used to your advantage. Because commercial leases vary so much, they can be negotiated to fit your needs as a business. If you are opening a restaurant, a brewery, a hair salon or a manufacturing facility, you will have distinct needs when it comes to building use and amenities. Similarly, your lease should fit with your projected business growth so you can expand or upgrade when your business needs it.

Your commercial lease is one of the most important decisions you’ll make when starting a new business. Your location will directly shape the trajectory of your growth, so it needs to match what you envision for your company.

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