Non-residential and commercial leases FAQs
Unlike residential leases that are often only for a year, many non-residential leases last numerous years. If you can sign a responsible business tenant for many years, you will benefit from long-term income. If the business is a restaurant or retail space, the success of the business may partly rely on location, which may make them want to lease longer. If you've had a difficult time leasing the space long-term, a lower-priced rental may be more beneficial than a high-priced, short-term lease in the long run.
Here are a few more advantages of long-term commercial leases:
Legal limits on security deposits vary by state and range from the equivalent of one month's rent to an unlimited amount. If you are unsure about what laws apply to your situation, ask a lawyer.
In some instances, a commercial sublease may be a smart move. For example, if you have a tenant whose business is not doing well, you may benefit from allowing them to sublet the property to another business. In this arrangement, your original tenant would still be responsible for the rent and for the original terms of the lease, but you may increase your chance of collecting rent from a more profitable business. You could also save money on the legal fees involved with a formal eviction if the failing company cannot pay rent. Another situation that may be beneficial is if a strategic partner wants to share the space with your tenant with the goal of improving revenues for both businesses. For example, a coffee shop and a bakery may want to rent your space together to help each other's businesses. You'll have to decide what makes financial sense for you.
Some tenants may want to alter the leased space. How much you decide to invest in the updates is often tied to the nature of the renovations and how long the lease lasts. The longer the lease, the more likely you'll be motivated to help with the building remodel. If you decide to help your new tenants update the building you can help them in two ways. You can help them outright by paying for the remodel yourself, or you can take a few months off the rent to help your tenants pay for the update. For a five year lease, a landlord might take off up to six months of the rent to help with renovations. In some cases you may want to add a clause in the lease that dictates how you want the property returned to you.
While you need to have your own insurance, you may also want to require that your tenants carry adequate insurance, as well. Generally, tenants should have enough general liability insurance to cover their property, damages and injuries. You may want to require, at the minimum, $1,000,000 per incident and you could also request a special endorsement naming you as an additional insured. You might also require for them to have insurance to cover damages they may incur to your property. While you cannot run their business for them, you may benefit from talking to your commercial tenants about other types of insurance that may help them keep their business solvent, such as workers compensation insurance and business interruption insurance. The success of their business helps ensure that you receive your rent so helping them figure out what additional insurance they might need helps both of you.