California is home to about 780 million square feet of commercial building space. This makes sense when you consider the state's 4.2 million small businesses!
As a commercial landlord, you're in charge of leasing commercial property to these businesses. Navigating commercial space rental is easier when you understand how lease agreements work.
Read on to learn:
- How commercial lease agreements work
- What types of leases exist
- How to draft up a lease agreement
- Tips for negotiating Riverside lease terms
The Ins and Outs of Commercial Lease Agreements
A commercial lease is similar to a residential lease. The key difference is that it leases out commercial property to businesses.
Some commercial property types include:
- Retail storefronts
- Restaurants and cafes
- Office buildings
- Warehouse space
- Industrial buildings
An organization finds the building that fits its needs. They then contact you, the landlord, and ask about lease terms. You work with property managers to decide:
- Which tenants to rent to
- How much rent to charge them
- How long your lease should be
Usually, commercial leases last three to five years. This is significantly longer than the one-year standard residential lease. After the commercial lease expires, you can choose whether or not to offer renewal to the businesses operating there.
Types of Commercial Lease Agreements
There are three common types of commercial lease agreements. They include:
- Gross leases, where tenants pay a flat monthly rate and landlords pay for operating expenses
- Net leases, where tenants pay a base rent and pre-negotiated operating costs
- Modified gross leases, a middle ground between net and gross leases that lets tenants and landlords split operating costs
Operating expenses include:
- Property taxes
- Insurance
- Maintenance fees
Net leases are the most popular option for commercial landlords while gross leases are more common for residential properties.
Modified gross leases are another appealing option for commercial renters. Using a modified gross lease system may make your building stand out above other properties in the area. After all, business owners want to minimize their operating costs!
How to Draft a Commercial Lease
Drafting commercial lease agreements is challenging for landlords. You need extensive knowledge of the legal processes required to draft binding documents. You also will require specialized leasing software.
A Flint, MI property management company comes pre-equipped with both knowledge and tools! They'll construct a lease that's clear on:
- Rental rates
- Lease terms
- Permitted property use
- Maintenance responsibilities
- Insurance requirements
At this point,property managers will implement lease negotiation tips to help you maximize your income. This means talking with new tenants and finding fair rental prices and terms.
Since experts are seasoned in the negotiation process, they may be able to find compromises that you didn't even think existed!
Manage Your Riverside, California Investment the Right Way
Now that you understand how commercial lease agreements work, it's time to start the process of business property leasing.
PMI Riverside's pros are excited to help you figure out appropriate lease terms and create a legally binding document. We'll help you figure out how much your rental units are worth and how you can maximize your income.
Get a free rental analysis to learn how much you could make from commercial space rental!
