An Owners Guide to Commercial Leases
Are you thinking of leasing out a space you own? I have over 20 years of experience in the commercial property industry including experience building, owning and as real estate. I understand the stress and nerves that can surround leasing out your prize asset. My experience has helped me put together this checklist to help you have a hassle-free commercial lease process.
Do you have a business plan or strategy for your property(ies)?
The most important thing to consider before leasing out your commercial property is your overall strategy. Your strategy will help you make every other decision about your property, it will guide you in everything from pricing to marketing to property changes. A great agent will sit with you to discuss your strategy to ensure you get the most out of your commercial property investment.
Who is the space appropriate for? What sort of business(es) would benefit from your space?
Just like any business it is key to understand the target market for your commercial premise. Is the space perfect for a small café or does it need an established large restaurant to fill the space? Is it a warehouse suitable for everything from a mechanic to a showroom or is it more suited to a gym? By understanding how a business could use the space you will be able to highlight the benefits to each business type and reduce the time to lease significantly.
Should it be leased as one big space or smaller spaces?
For many commercial spaces it is essential that you think outside the box. Can the space be rented as multiple small spaces for a higher return or is it more valuable as one large space? Can you make changes to the property to increase its attractiveness for example adding meeting spaces, kitchens, and solar electricity?
Understand the difference between commercial and residential leases
There are some very big differences between commercial and residential leases. With a commercial lease there is generally less “consumer” protection. A residential lease generally has a term of a year or less, while a commercial lease has a longer term which could be up to 30 years. The differences continue when you look at payment terms with residential leases payment is made on a weekly or monthly basis, while commercial leases are more likely to be paid monthly or quarterly. The termination period set out in a commercial lease also tends to be longer than in a residential lease. Understanding the differences and the purpose of the lease is essential to getting your commercial lease right.
What is the commercial market in your area doing?
Understanding the market is key to pricing your property and will help you to understand how your property is different from other properties on the market. A great real estate agent will help you to understand the market you are operating in and will give you tips to increase the rental value of your property.
Is there any planned work for the area e.g. infrastructure or large building projects?
Planned works and infrastructure can affect your rental yield. Understanding both positive and negative impacts of planned or ongoing works in the area of your property is essential to successfully leasing your property. Lack of foot traffic or carparking in the short term may decrease your return, however building projects can also have a positive affect with a shortage of available properties increasing demand.
What lease terms suit you?
As an owner it is important to ensure your lease suits you and your needs. You should decide on details including the term of the lease, any free periods you might offer, inclusions and utility payments. Will you allow or restrict the changes a tenant can make to the property? It can be valuable to you as an owner to allow a tenant to make changes to your property. It adds flexibility to a space, and if things don’t work out for the tenant, the changes may increase future rental returns, so think carefully about what you will and will not allow.
Are you in the property market for the short or long term?
If your commercial property is a shorter-term investment you may not be able to afford for it to be empty. You would be looking to get an immediate return, with any changes resulting in an immediate value increase in the property in terms of both rental return and property value. If you are a longer-term investor you may be happy for the property to be empty while you wait for the right, long term tenant.
Choose the right agent
With the right agent on your side you will be able to negotiate the terms of your lease, find the right tenant for your space and find a quality, ongoing tenant to give you the return on your investment that you deserve. A quality agent will look after your investment like it was their own to ensure a long-term asset and return.
With plenty of thought in the early stages of your commercial property journey you can increase your chances of success, get the right people on your side and maximise your long-term plans.
Until next time, happy investing
Any advice in this blog is general in nature. Please contact your trusted real estate agent or legal counsel for more personalised advice