Anyone with any experience in commercial property leasing will tell you that this type of property rental is a very different beast. While you still need effective tenant screening to make sure you’re renting to the right person or organization, there are many other factors to consider too.
Types of Commercial Rental
Commercial leases come in many different forms and formats, with a huge variety of terms and contract clauses, but while there’s certainly no one size fits all solution, there are few basic options:
- Percentage leases, which are common in retail spaces, include the base rent for the unit, as well as a percentage of monthly sales.
- Net leases, double net leases and triple net leases are another common commercial form of lease, which leave tenants liable for taxes, insurance, and maintenance costs in addition to rent. They’re great if you want to be a hands-off landlord.
- Gross leases are much less common, and are also known as “fully serviced leases.” In this type of lease, the landlord takes on all the extra costs and hassles, and the tenant just pays their rent, which includes the costs and management fees, often called a “load factor.”
Insuring Your Investment
One of the biggest factors in commercial leasing is ensuring that your long-term property investment is secure, and that’s why insurance is such an important part of this type of lease.
This is one of the reasons why commercial landlords need to think so hard about what the acceptable use of your property will be, and how insurance will be handled. Aside from regular insurance, you will also need to ensure that your tenants carry adequate public liability insurance too, because that helps to prevent third party injury and damage claims.
Choosing a Good Commercial Tenant
Commercial property leasing is a much more complex process than its little residential cousin. While your tenant selection for a residential property is all about character, track record and employment checks, there are several other factors to consider when choosing a tenant for your commercial rental:
- The nature of the business. Is it high risk or dangerous? Seasonal? Is it in a high-risk industry?
- The length that the company has been in business. Brand new companies might not have access to credit or any credit rating at all. Are the business owners prepared to take personal responsibility?
- If the business is new, have they offered to provide you with a business plan? This can be a good indicator of how their business will fare.
- Do they have all the certifications and licenses necessary to operate in the city and in their industry? Get written verification and copies of all these.
- Do they have all the insurances needed to protect their business and your property? Again, everything in writing.
- Are they willing to agree to a specific use provision? Just because their business is in one area now, does not mean it will stay in that industry, and you want to be able to cancel the lease if they switch to an undesirable sector or business model.
These are just a few of the things you will need to discuss with prospective business tenants for your commercial rental property. Most importantly, verify as much as possible, and get everything in writing. If it’s not in the lease, signed and sealed, it cannot be enforced.