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Friday, May 7, 2010

The ABC's of Commercial Leasing

By: Julie Hovorak, Broker

Finding a commercial location is one of the single most important steps toward the success of your business. Finding the perfect space does not have to be difficult, and with the assistance of an experienced commercial real estate broker, the process can be relatively quick and painless. Once we have identified the desired location, we begin the proposal process. Most lease negotiations are in the form of a Letter of Intent (LOI), at the very least the negotiation should always be in writing. The negotiation process does not imply commitment and the LOI is not usually binding, it merely establishes the basic terms for which the final lease agreement can be drawn from. This is an opportunity for the owner and future tenant to begin a dialogue and negotiate a successful lease.

If the owner's broker is present during the initial tour they may provide you with written or verbal information about the property, approximate terms and lease type the owner is expecting.
There are several types of commercial leases, the most common being a triple net or modified gross. It is important to be aware of any additional increases in monthly charges which may occur over the lease period and how those increases might effect the lease.

Once we are ready to prepare a proposal we will need to include the following information:
1. Tenant/Trade Name
2. Address or description of premises, including approximate size, if available
3. Length of lease desired
4. Date of possession and rent commencement (these may differ depending on concessions)
5. Rental rate including increases
6. Security deposit amount ( a new business start-up will usually require a larger deposit)
7. Your intended use of the premises (be specific)
8. Any improvements you are proposing for the space, related contractor proposals & who will be responsible for the improvements
9. Contingencies to the lease (city licensing, zoning restrictions, etc)

I recommend that an experienced broker assist you with this process and give you some insight into the owners perspective. When you are ready to submit your proposal we will also submit a commercial application usually supplied by the broker. This is a standard application requesting personal and business information including bank and trade references, the owner will use this to determine your credit worthiness. In addition, many owners will ask to see a financial statement. In the instance of a new business start-up, they will ask to review your business plan if available.

Once the owner has received the proposal they will consider the terms you have requested, this may result in a counter offer from the owner. Essentially this is a process of negotiating parameters for a happy and successful business relationship.

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