Demystifying Commercial Lease Agreements: What You Need to Know

Demystifying Commercial Lease Agreements: What You Need to Know

Thinking of leasing a commercial space in San Jose? You'll be spoiled for choice -- last year, downtown office vacancies hit a 10-year high!

Of course, having a lot of options doesn't mean you shouldn't do some research. Even if you find a commercial space you like, look at the lease agreement. Oftentimes, the terms will clash with how you intend to use the space.

Need some help with decoding a lease? Here's a quick guide on commercial lease agreements and what to do before you sign one!

What Is a Commercial Lease?

A commercial lease is a legal contract between a landlord and a business. You'll need one to conduct business on a commercial property.

Commercial leases share many similarities with residential leases. One key difference is the length of the lease. Commercial leases tend to be longer, usually lasting between three and five years.

Commercial leases often offer more flexibility in negotiations. This can play into your hands, especially since many commercial landlords will do what they can to keep tenants happy.

Elements of Commercial Leases

For a commercial lease to be valid, it needs to include certain elements. This includes the rent amount, tenant deposits, and lease duration.

One key element you should pay attention to is the list of additional costs. Property taxes fall into this group, as do maintenance and insurance. These expenses can add up fast, creating large overhead costs.

A lease can also grant your business exclusive or permitted use. If you're in a competitive industry, choose the former option. Otherwise, another business could occupy your space and compete for customers.

What to Look for When Signing a Lease

Before signing your lease, make sure you know what you're in for. For starters, go over your rental structure and lease terms.

With rent, it's important to look beyond what you'll pay each month. Find out if and how much your rent will increase per year. This will help you determine your budget and understand if you can really afford the space.

As for the terms, both long-term and short-term leases have pros and cons. A long-term lease is a great fit for an emerging area. A short-term lease is easy enough to renew while allowing you to move if things don't pan out.

Other Statutes to Keep in Mind

Once you've settled on your preferred terms, it's time to look at some less obvious statutes. Oftentimes, these will make or break a deal.

First, find out more about the transfer structure. If you close your business, you can either transfer the lease to a new tenant or sublease it. The latter allows you to share the lease with another commercial tenant.

Also, consider the holdover rent. If you end up moving, you may need to stay longer than your lease allows while you set up the new one. Ensure your rental payments don't increase beyond 125% if you stay too long.

Commercial Lease Agreements Made Easy

The bottom line: commercial lease agreements can be complex. The above guide will help you make sense of it all and protect your rights!

Looking for commercial properties to rent in San Jose? At PMI San Jose, we offer a diverse selection of office spaces, retail storefronts, and specialized properties. Find the perfect property for you right now!