Imagine finding the perfect commercial property for your business only for your lease terms to work against you. According to a recent study by Alignable, roughly 43 percent of small business renters in the U.S. couldn't pay their rent in full and on time in April of last year.
While business success is a factor, over half of these small business owners said their landlords now charge them more. Mastering commercial lease analysis is one way to protect yourself from rent hikes and any surprising limitations.
Here are five essential steps to help you approach real estate analysis in Los Angeles, CA.
1. Understand the Basics of Commercial Leases
Before diving into a business lease strategy, familiarize yourself with the various types of commercial leases available. The most common types include:
- Gross lease
- Net lease
- Percentage lease
- Modified gross lease
With a gross lease, the landlord covers only operating expenses. A net lease has you pay for rent plus a portion of those expenses.
Percentage leases base rent on your business's revenue. Modified gross leases are hybrid agreements where both parties share specific expenses.
Ideally, you'll find a landlord offering flexible lease terms that fit your business structure.
2. Analyze Financial Implications
A crucial part of commercial property leasing is the financial side of it. The best lease negotiation tips include knowing where your money goes and the property value. Make a detailed calculation of:
- Total rent payable throughout the lease duration
- Repair costs and maintenance fees
- Potential rent escalations
- Additional expenses like property taxes and insurance
By calculating these factors, you will avoid any financial surprises and ensure long-term sustainability for your business.
3. Lease Term Evaluation
Never rush through the lease terms. Sections that may seem mundane often hide vital information, like:
- Termination clauses that might impose penalties
- Subletting and assignment rights
- Renewal options and how they impact future rent
The more you understand these terms, the better equipped you will be to negotiate or modify them to suit your business needs.
4. Consult With Professionals
Don't shy away from seeking help from property management experts. These professionals can:
- Provide insights that you might overlook
- Assist in navigating local regulations and compliance
- Help negotiate terms that align better with your business goals
Having an expert by your side can be the difference between a favorable lease and a contractual mess.
5. Leverage Technology for Better Analysis
In today's digital age, numerous software tools are available that can significantly enhance your commercial lease analysis. Consider using:
- Lease management software for tracking key dates
- Financial analysis programs that depict various lease scenarios
- Collaboration tools for sharing lease information with your team
These tools save you time and improve accuracy in your analysis.
Take Control of Your Commercial Lease Decisions
By following these five steps, you can become proficient in commercial lease analysis and enhance your decision-making capabilities. At the very least, it'll save you from agreeing to any unsatisfactory terms.
PMI Los Angeles can offer you the expertise you need when signing your next commercial lease. Our company is part of a nearly 20-year-old franchise changing the property management industry as you know it.
Reach out for more information on how we can help your business thrive.
