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If you are new to commercial leasing and are renting a commercial space for the first time, here is an overview of the commercial leasing process.
Table of Contents
1. Find a location
Determine the demographic you want to reach and find an area that caters to that demographic. Next, you want to research the market by considering the competition in the area and how your business will stand out.
When analyzing your potential locations, you should look at costs: I recommend creating a spreadsheet where you list all your costs associated with each place you are considering. You can now compare different sites side by side with a cost spreadsheet.
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2. Tour with your general commercial contractor
Once you have visited all the locations and analyzed the costs, you will go through the locations with your general commercial contractor. You want your general contractor to assess the condition of the walls, floors, roof, and foundation to make sure they are in good condition. In addition, check the availability and condition of electrical, plumbing, and HVAC systems to ensure they are suitable for their intended use. Finally, if you need gas, you want to make sure that gas is currently available in the property.
Be sure to have your general contractor assess the accessibility of the space. Ask your general contractor if the property meets American With Disabilities (ADA) requirements.
If you would like to submit a quote after your tour with your main contractor, ask your main contractor to provide you with a quote. With this quote you can evaluate the cost of any necessary repairs or renovations.
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3. Prepare and submit a lease quote
If you work with a real estate agent, they can help you prepare your rental quote. You want to ask your real estate agent for compositions before letting them know what lease rate you want to offer. When judging compositions, remember that you need to know the big picture. Landlords often give tenants a cash allowance and free rent to get a higher rent.
After reviewing the compositions, decide on your budget. Determine how much you will pay for rent, security deposits and other costs. Also determine the length of the lease that you are comfortable with. At this point, you or your broker are better off writing a letter of intent, known as an LOI. Your LOI should describe your proposed terms, including the length of the lease, rental amount, security deposit, and other relevant details.
4. Wait for a response
This part is the hardest for many of my clients as it can be challenging to know when to come back in once the ball is out of our court. If you seem too anxious, it will affect your bargaining power.
5. View and negotiate
Once you have received the answer from the landlord, continue the negotiations or move to another property. Keep in mind that a landlord rarely accepts an original offer from a tenant. Therefore, if you continue the negotiation process, you will continue to negotiate until you reach a mutually acceptable agreement. This process can take several weeks, but complex deals can take more than a year.
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6. Rental Agreement
If you agree with the landlord on the LOI, you wait for the review of the lease. I recommend that during this time you interview and decide upon a commercial real estate attorney who is skilled in reviewing leases and representing tenants.
7. Attorney’s Review
Once you have received the rental contract, send the rental agreement along with the agreed LOI for your lawyer to review. In addition, it is essential that you read the rental agreement carefully to ensure you understand the terms and conditions. You want to verify the conditions with your lawyer. Make sure the rental agreement accurately reflects the terms negotiated.
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8. Final Inspection
Before signing the rental contract, I recommend that you do a final inspection. Normally the main contractor will carry out an initial assessment free of charge before this point. They charge a fee for a thorough inspection. Given the financial costs associated with the rental, it is good business practice to pay for this final inspection.
9. Execute the rental agreement
After you are familiar with the rental agreement and the final inspection, execute the rental agreement. It’s important to note that your time typically starts ticking when the lease is mutually executed. This time is especially specific for the free rental period.
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10. If necessary, call in an architect
You may need to hire an architect to make plans if you are making significant changes. If the landlord has existing plans, this saves money and time. I recommend asking about these plans during your LOI negotiations.
If you need plans drawn, your architect will submit them to the city upon completion. Each municipality uses different speeds at which they work. You must understand that you cannot start building until the plans are approved.
The process of renting commercial real estate can be complicated and time consuming. That’s why I recommend working with a commercial real estate broker, general commercial contractor, and commercial real estate attorney to help you along your journey.
