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Is the Price of That Commercial Lease Really What You Think?

| Dec 23, 2020 | Real Estate

In some lines of business, location is everything. The ideal spot can be hard to come by, and when a well-placed premise comes on the market, someone else may snap it up fast. However, before you rush to sign a commercial lease, you need to be sure you fully understand the rental costs.

There are various ways of pricing commercial leases

Not all landlords price their property in the same way. Failing to understand exactly how the lease pricing will work could have serious financial consequences. Here are some terms that you need to understand:

  • Gross lease: This is the most straightforward form of pricing. You pay a set amount each month. Taxes, repairs and insurance are included in the price. Energy bills may or may not be. Check the contract.
  • Net lease: You will need to pay some taxes on top of the rent.
  • Net-net lease: You pay taxes and insurance on top of the rent.
  • Triple-net lease: You pay taxes, insurance and repairs, maintenance and any other running costs on top of the rent.
  • Percentage lease: You pay a percentage of what you earn on top of rent.

Plus, you need to understand what can cause a lease to increase in cost over time. Escalation clauses, for example, determine when and by how much a landlord can increase rent. Some clauses are very much in the landlord’s favor.

What happens if you need to shorten or extend your commercial lease?

If you have no means of escaping your contract early, you could incur considerable debt if your business is not working out. Subletting to someone else may be an option, but some agreements exclude it. Failing to negotiate a favorable option to extend when you first sign a commercial lease could cause problems if things are going well.

Before signing any commercial lease, you should have it checked by a legal professional. Getting the right premises at the right price could enable your business to thrive. Tying yourself into an unfavorable contract could doom you to failure.