Renting space?

[Bob Hubbard]

Ok, I'm slowly wading through the maze of jargon involving renting studio space. I'm confused. How does this stuff work?

I'm seeing rates quoting by the sqr. foot, property taxes, maint fees, etc. etc.

Websites I can do. Geeky stuff, no prob. This, has be confuddled.

Help!

 

[Carol]

It's a complicated process. (I know...duh...)

Unlike residential leases, which are typically goverend by one's state housing authority, there is no one singular type of boilerplate lease for commercial space.

The only thing that is common is - before signing a commercial lease, having an attorney look over the paperwork is an absolute must.

 

[Brian King]

As Carol said use an attorney! The landlords use one and have the contracts to protect both them and you and they expect you to use an attorney to protect yourself. Everything must be understood for honest and fair communication and business relations. You will be building a relationship that can make or break your business venture and both you and your potential landlord should get along, just because it is business should not change the relationship process. Make sure you know all the costs involved not just the monthly rent, their may also be common area costs, local taxes, association costs, insurance costs and others. Your attorney can help with these. Talk to other business owners in the area you wish to locate to. Find out what is customary for that area. Take your time and remember there is always tomorrow and another location. If you do not yet have a relationship with an attorney this is an excellent opportunity to build one and anyone involved in business should have an attorney on their side.

See you on the floor soon
Friends
Brian King

 

[shesulsa]

It's a complicated process. (I know...duh...)

Unlike residential leases, which are typically goverend by one's state housing authority, there is no one singular type of boilerplate lease for commercial space.

The only thing that is common is - before signing a commercial lease, having an attorney look over the paperwork is an absolute must.

I worked as an assistant property manager for a firm and there actually *is* a boilerplate lease for commercial space.

One thing you might encounter is something we used to call Percentage Rent. The way it works is, you have a minimum rent you must pay and, if your revenue is over a certain amount, you must pay the landlord a percentage of your revenue over that amount in addition to your standard rent.

For example: Your standard rent is $1,500 per month up to $350,000 in total sales. As long as your gross (or net, depending on the lease) sales are equal to or less than $350k, you only pay $1,500 in rent. If your net or gross sales are $400,000, then you'll have to pay 6% (depending on the lease) of $50,000 plus your standard rent amount. So that's $1500 plus $3000, totaling $4500 in rent.

I set up a recording method for The Irving Company when they were first starting to use Personal Computers in their accounts receivable department for these very calculations. Remember Lotus 1.2.3? It was my *friend* - my specialty.

Then some commercial leases will demand a minimum amount in percentage rent due at the end of the lessee's fiscal year, others cap it off (dumb from a business aspect for them, but generous to the lessee) at a certain amount, so that if you pay a certain amount, that's as much as you can pay in percentage rent in a fiscal year.

I don't disagree with the advice that you have a real estate attorney analyze the lease you are sent.

Bob, ask for a copy of the boilerplate lease, unsigned, with proposed terms inserted so that you can review it before you EVER move in or sign it. Take it in. Talk to other businesses in the plaza (if that's where you're going) and ask how the PM (property management) firm responds to trouble, how they are for service and management and also percentage rent.

Contact any small business associations that might cover your area to see what kind of advice they can give you or service if you join the association for a small fee you can write off. It will be *WELL* worth it to do so.

Good luck!

 

[Andrew Green]

Ok, I'm slowly wading through the maze of jargon involving renting studio space. I'm confused. How does this stuff work?

I'm seeing rates quoting by the sqr. foot, property taxes, maint fees, etc. etc.

Websites I can do. Geeky stuff, no prob. This, has be confuddled.

Help!

Might be a little different down there, but up here, from what I remember:

You have a "rent" $X / sq ft per year. Divide that by 12 and there is your monthly rent, this is negotiable to some extent.

Then there is a Common area fee, not always advertised. Covers parking lot, garbage, external maintainance, etc. This is estimated (ex. $4/ sq ft per year) and non-negotiable. You might even get some back, or have to pay more. It's a percentage of the cost of maintaining the property divided amongst the tenants.

Often water is included, unless you are using a lot, but electricity and gas would usually not be.

Best bet is to ask the agent "What would my monthly payments be?" or give him a range and a area and see what he turns up. Find out what is included and what isn't.

Then add:

Insurance
Business Tax / License
Phone (Yellow page ads can make this expensive)
Advertising
Electricity
Gas
Maintainance
etc.

When you negotiate you do have some things that you can play with

If they are doing a lot of renovations for you they will want a longer term, and probably not give much. Bigger risk to them, means they want more assurances that the money they spend getting you in there will be worth spending.

If there is little work getting done, or you are doing it yourself you might be able to get a month or two free, have the first year at a lower rate, etc.

Also ask about signs, chances are that is another expense, and could be a big one. Sometimes the pillars are a seperate lease as well and not covered, ask about everything.

Different places are different though, some might just charge you a flat rate and thats it, others might include / exclude different things.

 

[shesulsa]

I was gonna add that stuff after coming back from my errand - Andrew lays out more particulars as well, Bob.

Then there's also the matter of insurance. They can mandate the minimum requirements for the insurance you carry on your space and you'll have to give them a certificate of proof of insurance on a regular basis - if you have a one-year term on the insurance, you'll have to send them the renewal in one-year intervals.

All the other little particulars will be covered in the boilerplate which you can have your attorney check out. And you can negotiate, as Andrew pointed out.

 

[Carol]

Great stuff Geo!

I meant to post more before that gawddarn explosion got in the way. You prolly have more experience with this than I do so if I'm saying anything that is isn't in sync with what you know...please say so!

I worked as an assistant property manager for a firm and there actually *is* a boilerplate lease for commercial space.

It depends highly on the state. In Massachusetts, the commercial lease agreements for retail space are structured completely differently than commercial lease space for manufacturing. Different statutes of the law, as well as taxation, may apply.

One thing you might encounter is something we used to call Percentage Rent. The way it works is, you have a minimum rent you must pay and, if your revenue is over a certain amount, you must pay the landlord a percentage of your revenue over that amount in addition to your standard rent.

For example: Your standard rent is $1,500 per month up to $350,000 in total sales. As long as your gross (or net, depending on the lease) sales are equal to or less than $350k, you only pay $1,500 in rent. If your net or gross sales are $400,000, then you'll have to pay 6% (depending on the lease) of $50,000 plus your standard rent amount. So that's $1500 plus $3000, totaling $4500 in rent.

I set up a recording method for The Irving Company when they were first starting to use Personal Computers in their accounts receivable department for these very calculations. Remember Lotus 1.2.3? It was my *friend* - my specialty.

Then some commercial leases will demand a minimum amount in percentage rent due at the end of the lessee's fiscal year, others cap it off (dumb from a business aspect for them, but generous to the lessee) at a certain amount, so that if you pay a certain amount, that's as much as you can pay in percentage rent in a fiscal year.

I don't disagree with the advice that you have a real estate attorney analyze the lease you are sent.

Bob, ask for a copy of the boilerplate lease, unsigned, with proposed terms inserted so that you can review it before you EVER move in or sign it. Take it in. Talk to other businesses in the plaza (if that's where you're going) and ask how the PM (property management) firm responds to trouble, how they are for service and management and also percentage rent.

Contact any small business associations that might cover your area to see what kind of advice they can give you or service if you join the association for a small fee you can write off. It will be *WELL* worth it to do so.

Good luck!

A "Percentage Rent" commercial lease can be done in retail, as can "Going Black" clause, however it is rarely done in space zoned and marketed as light industrial, nor is it done in buildings that are typically rented as office space.


A couple of things to keep in mind:

A good commercial lease protects the value of the property. A valued property is critical to the success of the landlord, as well as the tenant's commercial endeavor.

Commercial space is normally charged by the square foot. Which makes sense on the surface. But....there is no one uniform way of measuring space. And since a commercial lease is based on square footage, knowing HOW the footage is measured is absolutley critical. The BOMA methodhas been adopted by the American National Standards Institute, but that is not the only standard. This information should be volunteered by the landlord and committed in writing in the lease. Don't mean to sound nit-picky here...but this is the most important factor in determining how much you pay for rent, it needs to be clearly understood and in writing.

Keep in mind that the landlord's responsibilities are different than a residential landlord. In a commercial space, a landlord's responsibilities are generally to provide space, utilities, and a quiet place to work. Maintenance can get dicey, especially if a maintenance company is inolved. Be sure that who pays for what is clearly understood and in writing.

Don't sign a commercial lease that says "I have read and understood the terms therein" (or something similar) until you have read and understood the terms...including the customary application of all of the terms.

I don't know if that helps or not...

 

[Bob Hubbard]

It all helps incredibly.

Also found this:

Lease Types Defined

*The list below provides general information about lease types but is not a comprehensive list. Other parameters and guidelines with relation to tenant costs versus landlord costs are subject to points outlined in the individual lease.

Triple Net (NNN): A lease requiring the tenant to pay in addition to a fixed rental, the expenses of the property leases, such as taxes, insurance, maintenance, utilities, cleaning, etc. The terms "net net", "net net net", "triple net", and other such repetitions are used.

Full Service (FLSV): A lease in which the stated rent includes the operating expenses and taxes for the building. Same as a Gross lease. Opposite of Net Lease.

Full Service Except Janitorial (FLSVEJ or FSEJ): A lease in which the stated rent includes the operating expenses and taxes for the building but excludes janitorial. Same as a Gross lease. Opposite of Net Lease.

Gross: A lease in which the stated rent includes the operating expenses and taxes for the building. Same as a Full Service lease. Opposite of Net Lease. This is the least common lease type.

Modified Gross (Mod Gross): A modified gross lease sits somewhere between a Triple Net lease and a Gross lease. Some expenses may be included in the lease. Utilities are most likely paid by the tenant, however, utilities can be combined depending how a building and its utility meters are demised.

and gotten a few ideas through PM's.

Thank you!

 

[Rob Broad]

Always remember things are negotiable and if the land lord doesn't want to negotiate there are always more properties available.

 

[ArmorOfGod]

Bob,
How is the search going?

AoG

 

[Bob Hubbard]

So far, I'm collecting information, and begun checking out some places. What I'm looking to do is open a photo studio, with room for my web business as well. There is also a 3rd idea that I'm toying with including, more as an add-on but I'm not sure yet. Many of the things I'm looking for are the same as for a martial arts studio, which is why I asked the question here. Helps out others in similar situations.

One problem I'm encountering is that the majority of spaces within my estimated budget are 15' wide by 60-90' long. That width isn't going to work well for me as I've laid things out. Also doing some research into the surrounding areas as well. I'm hoping to find something affordable in a middle class area. So far, the best I've found is $5/sqr ft, but the plaza's kinda, um, dumpy. Others I'm checking out. I'm targeting late spring next year to get things moving. Right now, it's major R&D time.