Learn About Industrial Space Leases
Get Info on Terms, Rent, and Other Fees
While restrictions and lease conditions are important considerations to factor in when looking for commercial, industrial space, for most new businesses, how much the monthly rent will cost is often the deciding factor. Commercial leases can have added fees in addition to rent. Be sure you understand what additional costs are by asking questions, including:
- What is the base rent on the usable square footage? Many commercial leases have a base rent, that is, what you pay for the actual square footage of the space. But "loads" and "CAM" fees may be added to this rate, increasing your monthly rent.
- Are the terms of the lease negotiable? Negotiable terms include the base rent, free rent, security deposits, length of the lease, how much your rent and fees can be increased each year, and lease renewal options, etc.
- Are there costs in addition to rent? Are there any special taxes, property fees, load fees, CAM or other fees? If so, get them in writing. Make sure each fee is identified individually, how much each fee will cost you, and how often you will have to pay the fee(s).
- What will it cost you in the future? How much can your rent (and any other fees) be raised each year? What is the maximum percent or dollar amount your rent and other fees can be raised each year? If there is a 1% cap each year on load fees, that may sound reasonable, but this does not mean your base rent will be capped at 1%. To make up for low caps on other fees, your landlord may try to stick you with a 15% rent increase.
- What is included in the rent? What taxes, utilities, and services (landscaping, security, etc.) are covered in your lease, or that you are required to pay on your own?
Does Leasing Industrial Space Make Sense for Your Business?
Commercial, industrial spaces can offer many options that traditional office spaces cannot. But industrial spaces can also have certain limitations that traditional business and retail parks do not have. Be sure to ask questions about any restrictions that could be placed on your business in an industrial park before you sign a lease.
Questions you should ask about the property that you may wish to have addressed in your lease, include:
- Contractor and Service Limitations: Does the industrial park require you to use specific vendors or contractors for signs, lighting, renovations, build-outs, or any other services such as alarm, telephone, cable, etc.?
- Advertising and Appearance Limitations: Are there any restrictions that could affect your business such as all signs must be in black and white, no larger than 2 feet, or exactly 5 feet from the ground? (All these things would make it hard to distinguish your business from others, or to be seen from a distance.)
- Is the Unit Cable and Telephone Ready? If not, is it in an area where you can get these services and who are local providers?
- Utilities: What public and private utilities can you use or access from your unit? Will you set up your utility accounts? Some landlords may pay your utilities and then bill you for them. Will the landlord be required to provide proof of what you owe if you do not get billed directly from utility companies?
- Parking and Traffic Limitations: Are there any limitations on the number of parking spaces you and your customers can use? If not, then there are likely no restrictions on other tenants as well. Do or can you have assigned parking?
- Business Hours: Will there be restrictions on business hours or days of the week where you can operate your business or receive clients and customers?
- Nature of Business Protection and Restrictions: Will there be any restrictions on the nature of the business you operate? For example, if you are planning to open an antique shop, are there any restrictions on what you can sell, or, if you sell an item, will the landlord allow other similar, competing businesses to open while you are a tenant?An example of why this is so important to ask and to get it in writing is if an existing tenant has a doll shop with protection to retail privileges in the lease, an antique shop may be prohibited from selling antique dolls because selling dolls would compete with an existing tenant's business. You want to make sure that your business has similar protections within the industrial complex.
Addressing Build-Outs and Renovations
Leases can be complicated, and if you are planning to take a space "as is" and make changes to it, be sure to address your planned changes plans in the lease. Questions to ask about renovations and building out spaces include:
- Can you build out or renovate the existing space? If not, find another space. You may not need to build out space now, but never limit your business' future growth potential and unforeseen needs.
- Zoning Ordinances: Are there any zoning ordinances that would affect how you can build out space?
- Conflict of Interest Concerns: Are you required to use the landlord's contractors? If so, consider this a strong negative.
- Approvals Needed: What special permissions or approval do you need to get in advance from the city, county, or landlord?
- Improvement Incentives: Will the landlord offer any rent reduction, rent credits, or other financial incentives to contribute to the cost of renovations and build-outs?
- Avoid "Value Increases" in Rent: If you increase the value of the space by building out or renovating, will this allow the landlord to increase your rent proportionally?
- Time Limitations: Will there be any time-frames required by your landlord, city, or county to complete warehouse renovations and build-outs?
- Permits Required: What special permits will you need to renovate or build-out your space, and will your landlord help you obtain these permits?