ENOLAM Investments by Captain Retail

As a business owner, it is crucial to recognize the different types of commercial leases available. While the landlord typically selects the lease structure, you need to comprehend the implications of each for both parties. There are three primary methods for structuring a commercial lease. Understanding these types can help you negotiate a lease that best suits your business needs. 

1. Triple Net (NNN): the tenant is responsible for paying additional costs beyond the rent, such as property taxes, insurance, and maintenance

2. Modified Gross (MG): the landlord pays for some, but not all, of the additional costs beyond the rent, such as property taxes and insurance

3. Full-Service (FS): the landlord pays for all additional costs beyond the rent, including property taxes, insurance, maintenance, and utilities

Commercial leases can vary in duration, typically from three to ten years. The exact length of the lease can depend on several factors, such as the type of business you have, the property owner's goals for the property, and whether you are requesting any additional benefits such as free rent. Depending on these factors, property owners may offer lease terms that are shorter or longer than the typical range.

When you decide to rent a property, know that your base monthly rent may not be the only expense to budget for. There can be up to 99 points of economic impact in a commercial lease. 

For example, you may be required to provide a security deposit to ensure that any damages to the property are covered. Depending on the lease structure, you may also be responsible for additional expenses such as common area maintenance costs, which are the costs associated with maintaining shared spaces like hallways or elevators. You may also be responsible for paying a portion of the property taxes and building insurance, which can be especially important to consider when renting a commercial space. Knowing these potential expenses when budgeting for your rental property can help you plan accordingly and avoid financial surprises.

There are several types of commercial leases, including:

• Gross Lease: The tenant pays a fixed rent, and the landlord covers most      property expenses (e.g., taxes, insurance, and maintenance).
• Net Lease:      The tenant pays rent plus some or all of the property expenses (e.g.,      property taxes, insurance, and maintenance).
  • Single Net Lease: Tenant pays rent and property taxes.
  • Double Net Lease: Tenant pays rent, property taxes, and       insurance.
  • Triple Net Lease (NNN): Tenant pays rent, property taxes, insurance,       and maintenance costs.
• Modified Gross Lease: A hybrid lease where the tenant and landlord      share the property expenses, often depending on the negotiation.
• Percentage Lease: Common for retail spaces; the tenant pays a      base rent plus a percentage of sales revenue.

 Rent typically includes the use of the physical space, but the specific inclusions depend on the lease type. In gross leases, rent covers property taxes, insurance, and maintenance. In net leases, tenants are responsible for paying additional costs like property taxes, insurance, and repairs. Always review the lease agreement carefully to understand what is included. 

CAM fees are costs associated with maintaining shared spaces in a commercial property, such as hallways, parking lots, restrooms, and landscaping. These fees are typically passed onto tenants, especially in multi-tenant properties, and may be included in a net lease or modified gross lease.

Tenant improvements (TIs) refer to the modifications or renovations a landlord agrees to make to the leased space before the tenant moves in, such as building partitions, installing lighting, or improving HVAC systems. The lease may specify who is responsible for paying for these improvements, whether the landlord covers it or the tenant, and whether the tenant will be reimbursed for TI costs over time.

In the world of commercial leasing, all terms of a lease are negotiable. As a business owner, strive to obtain a lease that is favorable to your business interests. Landlords typically provide lease agreements to prospective tenants that tend to skew in their favor. Therefore, it is in your best interest to read the entire lease agreement, understand its contents, and request amendments that are advantageous to you as the tenant.

It is surprising to note that a considerable number of business owners do not review the lease terms thoroughly, which can result in unanticipated expenses that could negatively impact their business. It is crucial to have a thorough understanding of the lease terms to prevent any unfavorable impacts on the operation of your business.

• Sublease:      When a tenant rents out part or all of their leased space to another party      (the subtenant) for a portion of the lease term.
• Assignment:      When a tenant transfers their entire lease to another party (the      assignee), who assumes all lease obligations for the remaining term. In      most cases, landlords must approve subleases or assignments, and they may      have specific requirements for doing so.

Breaking a commercial lease early can have serious consequences. The tenant may be responsible for paying the remaining rent due on the lease or finding a new tenant to take over the lease. Some leases include an early termination clause that outlines the process and penalties for ending the lease early. It's essential to review the lease for this provision and consult a legal expert if necessary.

Yes, tenants are usually required to carry certain types of insurance, such as general liability insurance, property insurance, and business interruption insurance. The specifics depend on the lease terms and the property type.

It's important to acknowledge your strengths and weaknesses as a business owner and know when it's time to delegate tasks to others. Negotiating a lease for your business is a task that we recommend entrusting to a reliable commercial broker.

In today's digital age, searching for commercial property listings on websites such as LoopNet and Zillow have become all too easy. However, it's important to remember that commercial transactions can be complex. Trusted brokers have a wealth of knowledge about commercial investing, including information not publicly available. They possess critical skills such as comparable sales data analysis, investment analysis, and underwriting expertise. Their expertise can help you find the best properties and negotiate more favorable lease terms. Therefore, it is worth considering their services to ensure you get the best deal possible.