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The More Important Parts of a Commercial Lease

The More Important Parts of a Commercial Lease

There are a few parts of a commercial lease that you should pay close attention to. Commercial leases are lengthy documents that can be seriously daunting to peruse, but it’s important that you take the time to read all of the terms carefully before signing on the dotted line. While every part of the lease document is important, the following terms of the standard commercial lease contract are areas where you need to pay particularly close attention.

Four Important Parts of a Commercial Lease

1. Length of the Lease

The length of your lease is incredibly important for your business. A longer lease can often secure a lower monthly rent, as landlords prefer to have tenants locked into place to reduce the need to renegotiate or fill vacant spaces frequently; however, if you anticipate your business needs changing in the near future, a shorter lease may be preferable. You don’t want to end up having unused square footage or having to pay costly fees to break your lease if you need to relocate. Having a sublease term can be beneficial if you do opt for a long-term lease because you will have the ability to rent out any unused portion of your space if your business changes before your lease expires.

2. Rent and Security Deposit Terms

Of course, the area that discusses how much you’ll be expected to pay is an important part of your loan. Don’t just look at what the monthly rental rate is. Take the time to find out if and when rent increases and what the maximum amount of the increase will be. You should also look for information about any fees you may be assessed in addition to rent, what portion of operating costs are passed along to you as the tenant and what allowances are made for improvements to the space.

Pay attention to the security deposit, too. In some cases, you can negotiate your way out of having to put any money down to secure your space if you simply provide a letter of credit from a financial institution.

3. Premises Terms

One area of a commercial lease that business owners often mistakenly overlook is the premises terms. This is the area that clearly outlines what you’re renting. If you’re only renting a portion of the building, make sure that the contract includes parking and use of shared areas like any common storage rooms, lobbies, waiting rooms and conference rooms.

4. Use Terms

Use terms outline rules that can be deal breakers for some companies. Check this area to find out if there are any restrictions on what types of business you can conduct. Other tenants in the building may have exclusive clauses in their contract that prevent competitors from being located in the building. These terms could make it impossible for you to expand into other lines of business in the future. In this section of the lease, you’ll also find information about what type of signage and advertising you’re allowed to use on the premises.

Keep in mind that the first draft of your lease is likely to have terms that are most favorable for the landlord, but you do not have to simply agree. Landlords expect a negotiation to take place, so don’t be afraid to make a case for improving the terms to bring the contract into a better balance to benefit the both of you.


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.

10 Things to Know About 1031 Exchanges

10 Things to Know About 1031 Exchanges

(1) A §1031 tax deferred exchange is for investment property only. Land, commercial, or residential property that has been rented out, all qualify.

(2) A seller must use a Qualified Intermediary (QI) to act as the safe harbor of their funds

(3) You must spend equal to what you sell for minus customary closing costs in order to have 100% tax deferral. Anything below that number will be exposed to taxes, up to the extent of your gain.

(4) The true meaning of Like Kind: to the IRS the term simply means anything held for investment purposes. So you can buy and sell any of the following Land, Residential and Commercial and ALL are considered like-kind, OR you can sell one and buy multiple.

(5) Timeframes are not extendable in an exchange, the seller has 45 days from close to identify what you are going to purchase and a 180 days to close on it. The 45 days are included in the 180 days.

(6) Giving buyer credits are considered unallowable expenses if audited may be considered Boot (taxable cash), so consider lowering the sales price verses giving buyer credits.

(7) Under the (g)(6) of IRC 1031, there are restrictions when you can access you funds, if you have identified a property and you are past your 45days and don’t close on a property previously identified, your funds are held for the full 180 days. Be sure you have a good QI that clearly explains this so your funds don’t get locked up.

(8) Buying and selling from family members has its restrictions, when you buy from a direct member of your family; parents, children, siblings there is a two year hold rule under related party rules. Both you and the family member have to sell/buy and hold for two years or the taxpayer’s exchange could be deemed failed under audit.

(9) The exchange industry is not regulated, what that means is anyone can be an Accommodator. That is scary, chose a nationwide company that has the financial stability and backing to protect your funds.

(10) Most important, The IRS states you must be in exchange agreement with a Qualified Intermediary(QI) prior to closing on the sale of your relinquished property in order to defer any gain when you buy your replacement property; it cannot be done after close.


Sheila Long
Regional Sales Executive
Old Republic Exchange Company

C: 480.341.2032
T: 480.443.6830 -AZ
E: SheilaL@oldrepublicexchange.com

When to Start Looking for a New Commercial Office Space

When to Start Looking for a New Commercial Office Space

When should you start looking for a new commercial office space? Typically, companies start looking for  a new commercial office space as little as nine months before their existing lease ends. Unfortunately, they’re doing it wrong. To successfully find and negotiate space. The savviest tenants can spend two to three years planning for a move.

Step 1: Determining Your Space’s Suitability

The first step in looking for new space is to step back and look at your existing space. Sometimes, there’s nothing wrong with your existing commercial real estate that a few nips and tucks won’t fix. If your existing space basically works and your rent is at market, staying is usually cheaper and easier on your business due to avoiding the interruptions caused by moving.

Step 2: Finding a Commercial Real Estate Broker

If you decide that it makes sense to look at a new space, the first step is to find someone to help you with the process. A professional tenant rep can save you time by helping with every step in the process while also delivering better results due to his high level of expertise and access to special tools.

Usually, your first step is to go back to the broker that brought you to your current space. However, the market is always in flux, and it’s also a good idea to reach out to other brokers that are active in your area. Talk to similar companies to see who they have used in the past, as well.

Step 3: Researching Markets and Submarkets

The site selection process can be the most time-consuming step in finding a new piece of commercial real estate to occupy unless you are absolutely sure that you want to stay in the same general area. Barring that, you will want to study demographics and economics, conduct site visits, and really find the perfect place for your business. Even with a commercial real estate broker’s help, this process can easily take six months, especially when you factor in travel.

Step 4: Discussing with Your Existing Landlord

Once you generally know what you want, it’s time to sit down with your landlord. You will probably still have 18 or so months left on your lease at this point, but it’s still a great time to have a discussion. One possibility is that your landlord might be willing to sweeten the pot to keep you. Another is that they might want to get you out sooner to accommodate another tenant. In a worst case scenario, you waste an hour but you still retain all of the rights you have under your lease.

Step 5: Touring a New Commercial Office Space

Once you know that you’re moving, it’s time to start seriously looking at spaces. Your commercial real estate broker can help facilitate this entire process by finding potential sites and by arranging your tour. This process can usually take a few months.

Step 6: Negotiating and Signing

Once you’ve found the perfect space and a couple of backups, it’s time to start the negotiation process. The process’ speed varies based on your market, but it’s best to earmark a couple of months so that you aren’t rushed into taking an unsuitable offer.

Step 7: Building the New Space Out

Finally, you have to wait for your space to be built out and for all of its systems to be installed. Even simple build outs can take 60 or more days.

Optional Step: When Bad Things Happen to Good Commercial Real Estate

To really be safe, wise tenants build a few extra months into their schedule. That way, if something goes wrong, they still have some extra time


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.