Commercial Leases and Zoning: What You Need to Know
When starting or expanding your business, you will need to find a location out of which to operate. Whether it’s a storefront, warehouse or office space, you will need to consider the geographic area, how to negotiate a lease and whether or not the space is zoned for the activity you plan to carry out. If you will be entering into a commercial lease, here is what you need to know.
Choosing a Location for Your Business
When seeking out a space to rent for your business, your foremost consideration will be where the business space is located. You will want to make sure that the space not only suits your needs, but that it is also easily accessible for your customers and for any delivery trucks that may be making stops there. You will also want to consider any local ordinances that could affect how you do business, as well as what other types of businesses are located in the same area, especially whether there are any direct competitors.
Advantages and Disadvantages of Leasing
Most businesses choose to lease property rather than buy for two reasons. First, leasing requires less of an upfront investment money-wise. Second, in most areas there will be a larger selection of rental space to choose from than properties on the market for purchase. On the other hand, you won’t be building any equity on the property if you do not own it, and your landlord may restrict what kind of improvements you can make to the property. You will have to weigh the pros and cons to see if leasing is the right choice for you and your business.
Types of Commercial Leases
Unlike residential leases, which are largely uniform in many respects, commercial leases vary because the types of businesses and properties involved are often very diverse. For example, a lease for an office for an accounting firm and a lease for a laundromat will probably contain very different terms. Therefore, it is important that you know the basics of different types of commercial leases.
The most straightforward lease is a gross lease. As the tenant, you would pay a flat monthly rent, and the landlord would be responsible for the building’s operating costs. The rent would typically increase each year, as the landlord’s operating expenses will likely also increase. On the other hand, a net lease is one in which the tenant pays not only a monthly rent amount, but also pays for some of the landlord’s expenses. If there is more than one tenant, you would pay your proportionate share of the expenses. There are also various other forms of leases that cover every situation in between.
Negotiating Your Lease
Your biggest concern will likely be the amount of monthly rent you are required to pay, as well as any other ongoing expenses you will be on the hook for. Rents are usually calculated on a cost-per-square-foot basis. You may be able to negotiate with your landlord regarding what percentage of building expenses you will be responsible for, and it may be possible to get the landlord to put a cap on expenses and yearly rent increases.
Another area where many people negotiate is the term of the lease, meaning how long the lease is for. Landlords like tenants who sign long-term leases because it guarantees them income. However, that may not be the right call for your business, especially if you are just getting off the ground. You may be able to negotiate a shorter lease term in exchange for a higher monthly rent or increased share of expenses.
Other things to consider when negotiating your lease are what the lease allows you to use the space for, whether or not you can make any changes to the property and whether you can sublet the space or assign your lease to another tenant.
Different areas of a municipality are zoned for different uses. For instance, you may not be able operate a business in an area that is zoned for residential use. Before entering into a lease, you should familiarize yourself with the zoning ordinances that govern the property and analyze whether or not your business operations will be a permitted use. In the event that your business is not considered a permitted use, you may be able to request a variance from the local zoning board.
Leasing commercial space is the right move for many businesses. Understanding commercial leases and how they work can help you feel confident that you are making a wise business decision.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.