Overview: Renting Business Space

Renting a Business Space

When renting on a business space, take into consideration whether it is necessary to hire a broker, the location you desire, the features you require from the building itself, and the zoning ordinances in the area.

Hiring a Real Estate Broker

Locating the type of property that will suit the needs of a business may be difficult without help from a real estate broker. In a competitive commercial real estate market, a broker can be helpful in locating properties that are available, but not listed. Hire a broker that specializes in representing tenants rather than one that mostly represents landlords.

Selecting a Location

The location of an office space may be one of the most important factors when searching for a business rental. Take into account whether the location is near competitors, whether it is accessible to customers, whether it is important to be located in a district with other similar businesses, and whether the services offered in the area will benefit the business.

Evaluating the Physical Structure

The building should meet the needs of the business. Consider whether the structure will provide enough space, whether substantial alterations will be necessary, and whether the outward appearance of the building complements the business.

Determine Whether There is Enough Parking Space

The location should have adequate parking near the business for customers. If customers will park for a fee in a structure, make sure it is affordable.

Investigate Zoning

Every city and county zones property for specific uses. Make certain that the property is zoned for the business' intended use. Do not assume that a similar use by a previous tenant is an indication that zoning will allow a new business a similar use. Check with zoning ordinances to make this determination.

Negotiating the Terms of a Commercial Lease

Unlike residential leases, commercial leases do not come in a standard form. Terms regarding rent, the length of the lease, and exclusive use clauses are often negotiable. How many concessions a landlord is willing to give often depends on whether commercial vacancies are high.

Negotiating Rent

The cost of a lease will depend on several factors, including the commercial rental market, the type of business, and the landlord's willingness to negotiate. There are two ways that a landlord will calculate rent:

• Rent per square foot: Rent is calculated by multiplying the square footage of the property by the cost per square foot. For example, a 1,000 square foot space priced at $12 per square feet will cost $12,000 per year. Once divided by 12 months, the monthly cost of rent is $1,000. Be aware that some landlords may include width of interior and exterior walls and the space in an elevator in the square footage.

• Percentage rent: Rent is based on the square footage of the space and a percentage of the gross proceeds that exceed a certain amount every month. For example, if a landlord charges a base monthly rent amount of $1,000 plus 7% percent of the gross proceeds that exceed $60,000 per month, a tenant that makes $100,000 in gross revenue will pay the landlord $2,800 in addition to the base rent amount ($2,800 + $1,000 = $3,800 monthly rent).

Depending on the type of lease, the tenant may also be responsible for paying for utilities, taxes, insurance, and repairs. If it is a gross lease, the landlord will pay for these expenses but a higher rental amount may reflect these costs. If the agreement is a net lease, the tenant will pay these operating costs in addition to the rental amount.

Negotiating the Term of the Lease

Commercial leases typically range from two years to ten years. A new business should avoid a long-term lease agreement. Instead, consider entering into a short-term lease with an option to renew.

Negotiating the Inclusion of an Exclusive Use Clause

When renting a business space, negotiating a term that prohibits a landlord from renting a unit in the complex to a competitor is an important clause for a retail business. Exclusive use clauses will limit the type of businesses that can occupy the same building.