Tips For Managing Commercial Lease Transactions
by Arnab Dey Real Estate 22 September 2022
Commercial leases are binding contracts between a business tenant and a lender or landlord.
The lease allows you to utilize the property for commercial or business purposes for a specified period. You will be expected to give the landlord cash for using their space.
However, transactions involving commercial leases can prove to be very complicated along the way, especially if you’re unfamiliar with the nitty-gritty.
Here Are Nine Prime Tips For Managing Commercial Lease Transactions:
The good news is that you can streamline the whole process by taking the following steps:
1. Start early
Typically, it takes a few months to finalize a commercial lease agreement and begin repayment. To avoid stressing out at the last minute, start the process 18 months to two years in advance. If you have time constraints, you should begin the process as soon as possible.
2. Determine your needs
Do not look for commercial properties to rent right away. Having an idea of what you need in a commercial space can simplify making comparisons and evaluating leasing options. First, devise a plan for your financial resources and recruit individuals for your management team.
Each person should list needs with must-haves at the top and nice-to-haves at the bottom. By conducting a poll, you may further learn what your employees look for in a commercial space.
3. Use a lease accounting software
Basic accounting can be complex for laypeople, and lease accounting is not different. That is where investing in lease accounting software can come in handy.
Managing contractual obligations is one of the biggest challenges when a business expands into new locations. A lease accounting tool will give you a bird’s-eye view of all your contracts and lease payments and send you reminders in advance for upcoming deadlines.
Automation will simplify the process and allow you to focus your energies on other crucial financial and accounting-related details.
Be cautious when choosing software. For example: if you go with on-premises software, you will have to weigh the effort required for setup, upkeep, updates, and backups.
You will also have to consider whether your current IT infrastructure can support the software’s deployment. On the other hand, if you opt for a cloud-based solution, research service providers thoroughly and consider their data storage capacities, security procedures, and support quality.
Also, do not forget to read reviews. Evaluating reviews will help you select a vendor with a proven history of delivering assistance with software implementations, data management, and customer support.
4. Go paperless
If your company still relies on paper records, you should consider going paperless and tapping into cloud-based services.
Unless you use cloud-based services, you and your team will have difficulty exchanging reports and working together on staying up-to-date on lease transactions.
Managing and accounting for leases will become more streamlined by adopting a paperless approach.
5. Get help from other professionals
Doing all your commercial leasing transactions yourself could be a costly error, especially if you’re unfamiliar with how payments work. Hence, having a lawyer by your side can be helpful.
Lease lawyers help their clients by creating, reviewing, and advising them on lease agreements. They can also act as mediators between landlords and tenants, ensuring both parties benefit from the arrangement.
You should also connect with a commercial real estate broker. You should find a real estate agent who is quick to respond. Ideally, they should be able to get back to you on the same day you contact them.
To avoid potential conflicts of interest, you should not work with the real estate agents listing the commercial properties you are considering purchasing.
6. Assess the current rental market
Determine the rent for commercial properties in your desired area and then compare them to what the landlord asks. If you want to get a clear picture of what current leases are valued at in the commercial real estate market, it is best to consult with a commercial realtor. If the rent is high, you can use the info you gain through research to negotiate a lower rate.
7. Ask for tenant incentives
Inquire about possible incentives offered by the landlord. If the property has been empty for some time, the landlord may be especially keen to find a tenant.
In that case, it is usual for landlords to waive the first two or three months’ rent. Some landlords may even offer to cover the cost of your improvements in whole or spread it out throughout your lease term.
8. Review termination rules
Consider the lease’s termination clauses carefully. For instance, will you automatically be evicted if you fail to pay your rent? What are the repercussions of the building being sold during the lease term?
What are the lease termination fees if business slows down or you outgrow your current location? In some rental agreements, you may also be responsible for the full or partial outstanding rent.
Also, think about the possibility of finding a subtenant for the space. In the event of a drop in sales, you may be able to vacate the premises without incurring a significant financial penalty by subletting a small space to another tenant.
9. Do not put all your eggs in one basket
You might easily find a commercial space or structure that seems ideal for your purposes. However, we recommend you keep looking until you have at least 2-3 options. Doing so can avoid starting the process again from scratch if negotiations about your first choice come to a standstill.
Conclusion
Commercial leases typically last between 5 and 10 years. They can be renewed at the end of that time at a predetermined cost. When signing a commercial lease, the landlord and renter should check off a few boxes to ensure they have covered all the bases.
You can simplify commercial lease transactions and manage them more effectively by following the above-mentioned tips.
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