Opening your first shop or a shop in a new location can be a stressful process. There is so much to think about, starting with your marketing communication and your storefront branding.
At Vesper Realty, we appreciate that you’ve got a lot to plan and organize. Therefore, we want to take the hassle out of finding the right business property for lease and encourage business owners!
We often work with clients who are unsure about how to get the best possible lease agreement for their new retail business. Below, we’ve compiled some of our favorite tips we give tenants about their industrial property lease.
Why is a shop lease confusing?
A lot of new business owners are familiar with residential lease agreements and wrongly assume that a shop lease works according to the same principles. However, there are some mention-worthy differences that you should bear in mind as you prepare to open your store.
Indeed, consumer laws apply to the residential lease and are designed to protect the tenant. Commercial leases don’t follow the same regulations. As a result, they can offer more room for negotiations.
It is understandable for new business owners to feel overwhelmed by the prospect of negotiating your lease terms. We, at Vesper Realty, can act as an intermediary between landlords and tenants. We provide a complete set of services to both landlords and tenants to ensure safe, fair, and legally-binding completion for your transaction.
We cannot emphasize this enough: Potential tenants need to approach the process of looking for an industrial property lease with an open mind. The nature of a commercial lease allows you to consider the terms of each property rental and state the conditions and perks you want. In other words, you don’t need to sign a lease draft without negotiating the best terms for your business.
Is there only one type of industrial property lease?
The negotiating process differs greatly depending on the type of shop lease. Each lease states how monthly payments are calculated and which costs fall under the responsibility of the tenant and the landlord. Consequently, the first step for securing industrial spaces for lease that meet your budget criteria and your needs is to understand precisely what is open for negotiations.
You can come across different types of leases that have unique features and cost divisions.
- Single net lease and net lease: In this lease, the tenant pays property tax and utilities. The landlord covers maintenance, repairs, and insurance costs.
- The Net-net, or double net lease: The tenant pays insurance premiums for the building, property tax, and utilities. The landlord is responsible for maintenance and repairs.
- The triple net lease: In this constellation, the tenant takes charge of all costs related to the building, except for structural repairs that fall onto the landlord.
- The full service gross and modified net/gross lease: The tenant and landlord split all the costs between them, including structural repairs, property tax, property insurance, common area maintenance, and utilities. The split is called the base rent. In a gross lease, the landlord picks up most of the operating expenses, while the modified lease offers a fairer division.
- The percentage lease: It is a popular arrangement for a shop lease that involves paying a percentage of the monthly sales volumes on top of the base rent.
Another term to consider that can affect your profit as a retail business owner is whether you gain exclusive or permitted use in a community market or mall. Exclusive use means that competitors are excluded from the retail space.
Understanding the commercial lease statutes
A lease consists of multiple terms that can affect your business growth and presence.
The rent structure, aka how much you have to pay per month and how much you can expect the lease to increase every period, is the most critical element. It will help you determine your budget and figure out whether the shop lease is viable.
The lease duration can also make a big difference. For instance, a long-term lease can prove risky for a new business, while a short-term industrial property lease can be more flexible.
If you are unclear about business costs and responsibilities, your negotiation process should clarify who takes charge of the following expenses:
- Property taxes
- Insurance
- Security
- Parking
- Local nuisance laws
- Utilities
- Repairs
- Modifications made to the interior or exterior of the space
- Maintenance
Also, be sure to consider additional terms that could be damaging to your retail business.
- Non-disturbance agreement ensures you can stay in the space if the landlord fails to pay their mortgage;
- Holdover rent limits the rent increase after the expiration of the lease;
- Transfer structure allows you to either sublet some space or transfer the entire lease to a new tenant if you want to leave the space.
Negotiating industrial spaces for lease
Negotiating your shop lease can be tough. We often advise tenants to:
- Negotiate more than one location at the same time
- Ask for a cure period during which they can rectify issues for breaching the lease, such as being late on payments
- Negotiate a free rent period as a new shop lease
- Negotiate available perks
- Ask an experienced agent to negotiate on their behalf
- Negotiate a longer lease term for better base rent
- Add a sublease or co-tenancy clause
With over 25 years of experience in Metro Detroit, Michigan, we are specialized in both residential and commercial properties. We are proud to go above and beyond to help landlords, tenants, buyers, and sellers navigate their real estate projects safely. When it comes to finding the right business property for lease for your venture, you can count on us to provide quality choices from our commercial lease selection and accompany you throughout the process.
Got a question or unsure how to reach out to a potential landlord? Feel free to call us or drop us a message, 586-228-3177. You can reach us 24/7. At Vespa Realty, we never let you down when you’re confused about industrial spaces for lease.