Navigating Commercial Real Estate and Leases
Finding the appropriate type of commercial real estate and then negotiating the commercial lease are crucial first steps for most business owners. Negotiating a commercial lease is a far more complex process than signing a residential lease, and can have costly consequences if done incorrectly, hence it is advisable to consult with a South Florida real estate lawyer prior to signing on the dotted line. Below we discuss two common types of commercial real estate, office and retail, and the preferred types of leases for each.
There are different types of office buildings, and determining which best fits your business needs will depend on whether you rely on outside traffic to draw in potential clients, how much space you need, and other industry-specific requirements. Urban Office Buildings are found in cities, often in a Central Business District (CBD), and include skyscrapers and high-rises. Suburban Office Buildings are usually smaller, mid-rise structures found outside of city centers. Sometimes, cities have adjacent suburban office parks featuring a collection of mid-rise office buildings in a campus-like area.
Tenants of office buildings with steadily performing businesses will often seek a Gross Lease so they can pay a fixed monthly amount plus utilities, but are not responsible for other expenses associated with the commercial real estate.
Gross Lease — Business owners tend to pay higher rent, however, the benefit is that the landlord is responsible for all other expenses associated with property including property taxes, building insurance, and common area maintenance fees.
Retail commercial real estate can accommodate a wide range of retailers and restaurants. Retail structures can have multiple tenants or a single tenant, and typically fall into one of the following categories.
- Strip Center — A smaller property with a mix of small-scale retail stores and restaurants.
- Community Retail Center — Often includes a mix of restaurants, small retailers, and a few “anchor tenants,” larger retailers such as grocery stores, drug stores, and department stores that serve to draw customers into the overall retail property.
- Power Center — Similar to a community retail center, but it features several major box retailers such as national chain retail stores.
- Regional Mall — A large parcel of commercial real estate that features many different anchor tenants like department stores and big box retailers.
Since the sales of most retailers and restaurants are affected by seasonal and other periodic factors, tenants of retail commercial real estate prefer a Percentage Lease. That way their rent payments take into account the ebb and flow of their sales.
Percentage Lease — Business owner pays base rent, a minimum monthly rent due according to lease terms, plus a percentage based on the monthly sales.
If you or your business is considering leasing commercial real estate, whether it is an office, retail, a hotel, or an industrial property, consult with a South Florida real estate lawyer.
At Kelley Fulton Kaplan & Eller, we are skilled at negotiating binding and favorable commercial leases for our clients. Call today to schedule a consultation.