The economic and social changes brought by the coronavirus pandemic have changed the way many Arizona businesses operate. Several new and existing companies are adapting their practices and models to meet today?s conditions. For instance, some brick-and-mortar businesses are moving away from storefronts in favor of e-commerce and delivery. Other merchants have transitioned into smaller spaces. There are also upstart companies seeking to establish their first locations. In the face of today’s ever-changing conditions, it’s crucial that business owners enter into commercial leases under the best possible terms. By knowing the essential provisions beforehand, you can help safeguard your business and protect your interest. Here are some of the most important terms to consider when signing an Arizona commercial lease:
Rent and Expenses
One of the most critical factors to negotiate in your Arizona commercial lease is how much you will be expected to pay for the space each month. Some parties agree to rent increasing each year, while others negotiate for a limit on annual rental increases. Knowing how much you will owe now and in the future is essential.
In addition to rent, you will need to establish who will be responsible for expenses. The property will have costs such as those related to maintenance or repairs. There is also the matter of paying for taxes, insurance, and utilities. If you are entering into a triple net lease, you may be paying lower rent. Still, under this type of agreement, you will also be paying for building insurance, maintenance, and taxes on the leased property. Whatever you decide, you will need to negotiate this term upfront.
The Lease Term
As more companies and businesses move into the Grand Canyon State, the demand for Arizona industrial and commercial real estate continues to rise. This has led to a marked shift toward the establishment of e-commerce and delivery-based businesses. Companies are seeking industrial, commercial properties that can range from corporate supply-chain warehouse and distribution sites to emerging ghost kitchens. Traditionally, industrial and warehouse leases tend to be for longer terms than other types of commercial properties. However, a startup business may need to negotiate shorter lease terms that correspond with its capital growth and business plan. If you are supplying significant capital, you may need a longer lease to realize a return on your investment.
On the other hand, if your venture has limited funding and is higher-risk, you may prefer having the flexibility of a shorter lease commitment. Depending on the location and market competition, your landlord may also be willing to offer you an incentive to sign a longer lease. How long you will be obligated to pay rent for the commercial space can directly impact the financial health of your business. As you review the lease term for a prospective property, consider the needs of your business and projected future growth.
Changes to the Property
Commonly, businesses need to make alterations or additions to commercial properties to perform their operations. Before signing a lease, you will need to discuss any proposed modifications to the space. This discussion should include who will pay for the changes, what is expected to remain when the lease ends, and any improvements the business owner is expected to make to the property at the end of the term. You should also factor in whether you believe your business will be expanding in the future. If you expect that your business will need to grow from the existing commercial space, you may need to discuss including expansion rights as a term in your commercial lease.
Use of the Existing Space
Another critical term is use of the existing space. A business should have a clear idea of the permissible uses for a commercial property before entering into a lease. For instance, if a company leased a warehouse for bottling and distribution of a microbrewery ale and later wanted to open a bar at the site, the lease would need to reflect that the owner could use the property for both purposes. A potential lessee will also want to determine if they will be permitted to sublease any part of the property. Knowing a property?s permitted uses before entering into a commercial lease can help you avoid disputes and potential breach allegations down the road.
Parking can be a significant factor in a commercial lease. Depending on the type of business you plan to operate, you may or may not need more parking areas. Retail and restaurant businesses are most likely to need more parking spaces than warehouse tenants. If you anticipate that a certain amount of parking will be necessary to your business, this term should be discussed and negotiated before signing the lease.
It’s vital that you understand the provisions in your commercial lease before entering into a binding agreement. You will also need to negotiate the terms that are most beneficial for you and your business. If you are considering signing a commercial lease, you should consult with an experienced Arizona real estate attorney beforehand. Your counsel can review the lease terms with you and help you negotiate for language that protects you and your business.
Laura B. Bramnick is an experienced Arizona real estate attorney who has the expertise you need at every stage of your commercial real estate transaction. If you are seeking an exceptional, client-driven real estate lawyer in Scottsdale, Phoenix, Sedona, and throughout the state of Arizona, contact Laura B. Bramnick to schedule your consultation.