“Lease Tips For When a Tenant Leases Your Commercial Space” written by Mike Marko
Looking for some tips to improve your commercial lease?
If you’re managing a commercial space, you need to ensure that each tenancy is beneficial
To do this, you need to make the lease mutually beneficial to the tenant as well as the landlord. Your lease agreement should ensure the profitability of your property and an enjoyable stay for your tenants.
In this article, we’ll offer you some tips for when a tenant leases a commercial space to help you make the best lease agreement for your tenant.
What to Do When a Tenant Leases a Commercial Space
Every business needs intensive preparation. As a leasing business, you must understand that you have full control over your property, but you can govern your tenants’ activity and let them know what they can and cannot do within the lease term.
The keys to keeping long-term tenants are transparency and open communication. These can be achieved through a lease agreement. The perfect one must contain all the necessary clauses and policies for the tenants’ comfortable stay and for you to achieve the best benefits you can get.
Today, let us discuss some tips on how you can write the perfect lease agreement.
Determine the Specific Length of the Lease Term
When leasing, it’s important to state how long a tenant can or must stay on the property. Tenants will always look for properties that offer flexible agreements when leasing a commercial space.
For small businesses, one- or two-year lease agreements can be offered. This is so that they can determine the effectiveness of renting in your space with the way they’re running the business. Otherwise, longer-term agreements can be offered (e.g. 3- to 4-year agreements per contract).
Once a tenant’s lease is over, be open for renegotiation. Always allow your tenants to renew their lease, especially if their business is a good fit for your property.
Set a Reasonable Rent Cost
Being able to practically balance you and your clients’ satisfaction is one of the keys to the success of a leasing business. This is especially true when it comes to deciding with the rate of rent.
Tenants prefer to rent out spaces with the lowest rates. On the other hand, having really low rates could cause a major loss of revenue.
Remember that good businessmen offer reasonable costs and ensures comfort and quality for the tenants while receiving in return just enough for what he gives.
Determine the Tenants’ Payment Responsibilities
Consider presenting to your tenants a breakdown of the total cost of rent, especially if you are to require them to pay for the utilities and other expenses. If so, then you must understand that there are two different types of payment responsibilities, namely:
- Gross lease, and
- Net lease.
Understanding your tenant’s business is the best way to determine which one you’re going to offer them.
In a gross lease, the tenant only pays the base rent, and the owner is still responsible for the property’s:
- Insurance, and
A gross lease works best in buildings that offer spaces of similar sizes and functions.
In a net lease, the tenant will pay for all of the necessary expenses of the building. This type of lease is applicable to those who wish to rent out the whole property, or a major portion of it.
A net lease allows the tenant to have total control of the space. With it, they are able to make major changes to the property to meet their business’ needs.
Other Important Clauses to Include in a Lease Agreement
Aside from the tenancy period, rent cost, and payment responsibilities clauses, it is of common sense to include the most basic information needed when crafting your lease agreement. These include details about the tenant, landlord, and the rented property, as well as the terms and policies for leasing the commercial space.
Although, there are other clauses that are in need of further discussion with your tenants to ensure clarity and to avoid disputes and/or misunderstandings in the long run – some of which are listed below.
Whether or not you require security deposits upon leasing your property, it is important to include a security deposit clause in your agreement.
In this clause, you must clearly state everything your tenant needs to know about the security deposit: the amount to be paid, as well as your conditions for its full return. this is to avoid confusion. Usually, property managers can use the deposit as compensation for any damages done to the property.
Should you decide to allow pets within your property, it is important to state what kinds of animals will be accepted. Normally, commercial properties are for business purposes, thus disallowing animal entry. But if the tenant’s business is pet-orientated, you can offer to further discuss the policies with them.
Repair and Maintenance
You can hand the responsibilities for minor repairs and maintenance down to your tenants. If you wish to do so, you must include a clause about this in the agreement. Adding details about repair and maintenance of the rented property can help minimize complaints and misunderstandings.
A lease agreement must include details on how the tenant should responsibly make use of the property. This clause should include the allowed actions of the tenant.
Improvements and Alterations
For your tenants to be able to make improvements or alterations to your property, they must first obtain your permission to do so. This is why a lease agreement should include a clause regarding this matter.
The clause must state all the details about the allowable improvements that can be made, as well as a consultation period before proceeding with any construction.
What If a Tenant Violates a Clause?
When you suspect that a violation has been done, your tenants are still innocent until proven guilty. That is why before handing down any punishment or penalties, you must first inform or ask your tenants about it. You may then proceed to discuss how both parties can resolve the matter.
Keeping a good working communication is the best way to avoid miscommunication and further misconduct. But if the tenant has made a major violation, that’s when you need to give a notice. Violating a term or a clause in a lease agreement could end up to a lease break, leading to eviction.
Documentation of violations made thus far is a good tip for you to keep track of your tenants’ behavior. You can also have a hard copy, in case legal actions are needed.
Final Thoughts About Tips When a Tenant Leases a Commercial Space
Today, we talked about some tips for when a tenant leases a commercial space. Before you accept a new tenant, you need to first prepare a good lease agreement.
In the lease agreement, basic information regarding the lease must be stated. This includes the minimum/maximum length of the lease term which should be stated. This helps them prepare for their departure from your property, and helps you prepare for future vacancies.
The rent cost must also be included— the rent to be paid must competitive on the marketplace, whilst not being too low that it will lead to the property not being profitable. Also, state what type of payment responsibilities they are going to have to shoulder during the lease term.
Aside from these, you must also include special clauses for specific policies in your property. Some of which are:
- Security deposits,
- Policies for pets,
- Repair and maintenance,
- Property use, and
- Improvements and alterations.
Should you arrive in a situation where your tenants violate the terms of the contract, either they may negotiate with you (for minor violations), or you can evict them with prior notice (for major violations).
A good tip in case these kinds of issues arise is to have a copy of your tenants’ misconducts. That way when you take legal action, you have a clear basis of what they have been doing during their stay.
If you have any more questions about tips when a tenant leases a commercial space, leave them in the comments below.
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