18 Questions You Need to Ask Before Renting a Commercial Space

Whether you are moving an existing business or starting a new one, having the right office or retail space to support your day-to-day activities is essential. In a busy real estate market like Chicago, even the thought of renting a commercial space can be intimidating. Factors that include lease terms, room for expansion, and property accessibility must all be considered. To ensure that your decision is the right one, here are 18 rental questions you'll need to answer first before signing on the "dotted line."

What is a commercial lease?

As one of the essential requirements for leasing a commercial space, a commercial lease grants you – as the tenant – legal rights to use commercial property. As a legally binding agreement between a landlord (often the property owner) and a business tenant, a commercial lease outlines any terms and conditions the two parties must follow. A commercial real estate broker may also negotiate the terms of a commercial lease on behalf of a property owner or manager.

What type of commercial lease is being offered?

Renting space in a commercial kitchen isn’t the same as signing a commercial lease as an LLC. With all the different types of commercial leases out there, you’d better be familiar with each one. If you agree to rent a space that fails to live up to your expectations later – for example, as your business expands – you are legally obligated to honor the lease terms until the termination date.

Have you read and understood the entire lease?

The rent amount is an important consideration for any business owner because it will be a fixed monthly expense. On the other hand, cheaper does not always mean better. Be sure to read through all the terms and conditions found within the commercial lease.

To cover all your bases, it’s also prudent to pay a reputable real estate attorney to review the contract. You can also pull up examples of lease documents online, including a sample letter of intent for renting a commercial space and a sample of an actual rental contract.

Along those lines, if your business would happen to fail, will you have the option to assign the space to another party? Under what conditions can I terminate the lease? What are my legal options if a significant neighboring tenant decides to vacate the property?

What is the minimum lease term?

Knowing the answer to this all-important question will help eliminate costly surprises when least expected. In most instances, lease terms are negotiable with the landlord. Looking at it from their perspective, most landlords prefer a longer lease to minimize vacancies. As the tenant, it may be better to sign a long-term contract to protect your business against variables like inflation that can boost operating costs.

If you are not signing a long-term contract, for example, a 5-year commercial lease agreement, you’ll also need to know how much the rent will go up (escalation clause) if you do decide to stay beyond the lease termination date.

What amenities are included?

Before signing a letter of intent for renting a commercial space, it’s also wise to find out what business services are included in the contract. Although amenities such as electricity and HVAC are usually the landlord’s responsibility, be sure to confirm that fact in writing.

Services and potential limitations that need to be stipulated in your rental agreement include:

  • Payment responsibilities for other utilities (gas, water, etc.)
  • Public restroom(s) or commercial kitchen space, if applicable
  • How often the space will be cleaned, including the restrooms
  • Who is responsible if your HVAC system needs servicing
  • Building safety, security, and protection
  • Trash and snow removal services
  • Contingencies in the event of a flood
  • Any monthly limits on electricity (Notably if your business requires a lot of electricity)

What insurance coverage is required?

Most landlords require tenants to carry commercial rental insurance because it protects them from tenant negligence. In addition to standard property liability insurance, your landlord may also require your business to have workers’ compensation insurance so that cash flow issues don’t force you to break your lease. Before renting out any commercial space, be sure to read the lease terms carefully regarding insurance requirements.

Is there room for expansion?

Your primary goal as a business owner is to be successful. For starters, determine how large or small an area you need. As your business grows, your rental space must also have adequate room to accommodate those changing needs.

Another question to ask when renting a commercial property is how many parking spaces are available for your employees and customers? While you’re at it, try to obtain information on the local traffic patterns – which could be a positive or a negative based on the type of business you own.

Can you make changes to the office space layout?

Are you needing to rent industrial space as opposed to an office suite that’s suitable for walk-in traffic? Is the landlord open to the idea of changing the space’s layout according to your current and future business needs? If upgrades such as plumbing or electrical are needed, find out who will be responsible for paying for the modifications.

Is my credit score needed to rent a commercial property?

A prospective tenant’s ability to pay is one of the primary concerns of any landlord. Since most small business owners are required to sign personal guarantees or have the lease contract written in their names, their FICO scores matter – including yours.

Do you understand the CAM terms?

Common area maintenance (CAM) fees are often paid by tenants to landlords to help cover the expenses associated with keeping up spaces directly used by – or otherwise benefitting – tenants. As another potential operating expenditure, CAM fees may include those for maintaining hallways, parking lots, lobbies, public bathrooms, and building security. Read the rental contract carefully to determine your responsibilities when it comes to paying for CAM.

Can you have a sublessee?

If your business outgrows its current rental space or fails, it may be possible to sublease the property to someone else (sublessee) so that you can move out. Although most landlords will allow you to sublease your space, that is not always a given. To protect yourself, be sure that the rental agreement contains a sublease “escape” clause.  

Does the lease have an arbitration clause?

Sometimes disputes arise between landlords and tenants over issues related to insurance or property modifications. An arbitration clause stipulates in the rental contract that such disputes must be resolved through an outside party known as an arbitrator. It may be in your best interests as a tenant to include an arbitration clause in your contract.

What other tenants are in the premises?

Having major competitors to your business in the same building probably isn’t a good idea. In addition to that key point, find out if there are other businesses in the building that could tarnish your brand. Instead, look for a property with nearby businesses that make your brand more marketable – for example, an anchor store that attracts numerous customers.

How long has the landlord owned the property?

While new commercial landlords are rare, most successful ones have been around for a decade or more. As opposed to a newer landlord, a long-time landlord will typically have realistic lease expectations. Depending on the economic climate, many landlords new to the rental property game often charge higher-than-market rent amounts to compensate for a high mortgage.

Is the property manager local?

A landlord that lives nearby is usually a plus when dealing with an issue before and after signing a rental lease. Property managers must often take care of multiple properties, some of which may be in other cities or states. Try to rent from someone local who will promptly respond to your request rather than putting you off for days or even weeks.

Who were the last two tenants to move out?

Although the landlord will be able to answer this question, it’s also a good idea to ask other tenants in the building. Learn when the former tenants moved out, along with facts such as why they left and how they felt about the landlord.

Do you need a business license to rent a commercial property?

In addition to a photo ID and certified check for the rent deposit, you may need to bring your business registration along for the lease signing. However, that requirement varies depending on the type of business it is. Be sure to check with the landlord beforehand.

Is the building for sale?

As opposed to residential properties, commercial properties for sale are usually not advertised in the same way. Instead, most commercial property sales are conducted online through websites. Any landlord trying to unload their building will typically view prospective tenants differently than landlords who aren’t wanting to sell. If the property in question is up for sale, keep in mind that the new landlord may not be as likable or easy to work with as the current one.   

Your Commercial Property Leasing Experts in Chicago

As a company looking for space or a building owner, leasing a commercial space can dramatically impact your business’s bottom line. Millennium Properties has extensive experience negotiating leases for both tenants and landlords alike, getting the ideal terms for our clients. As part of our brokerage services portfolio, our professionals have leased spaces in retail centers, office suites, industrial warehouses are beyond.

At Millennium Properties, our mission is to connect potential renters with property owners so that all parties involved achieve their business goals. Whether it is a new lease, a sublease, or a renewal, we will work with you to develop a real estate plan so that you can focus on running your business. To learn more, contact one of our team members today.

Anne Barer

About Ro Crawford

Ro has extensive background in several sectors of the Real Estate industry including residential and commercial assets. Ro is responsible for developing a comprehensive marketing plan for each property as well as managing the company’s social media accounts. She designs, writes and edits offering memorandums, press releases, proposals for new business, eblasts and more. For questions, comments, or suggestions related to our blog, you can contact us via our website.