A corporate lease is a lease that covers one or several commercial spaces, under which, a business owner gains the right to operate his/her business from the leased space as per pre-agreed terms.
The commercial real estate leasing isn’t only about finding a space to run your business. It’s an investment into your future. Finding the right place at the right price with the most favorable terms will help your office become more efficient, increase the retention of your employees, and make your business attractive to potential customers while saving costs.
However, it’s not all about the location, asking price, or square feet. The amount of space you have available along with the terms and conditions of your commercial lease could impact your business in numerous ways, for example:
- Imposing (or avoiding) unpredictable costs like maintenance.
- The restriction of the ability to add space when you are required to upgrade.
- Facilitating (or hindering) the ability of your company to perform necessary building of custom infrastructure, for example, office space partitions, server rooms, to name a few.
Whether you’re leasing warehouse space, an office co-working space, or another type of commercial area, we’ll show you what you should anticipate from the process of corporate lease and how to ensure that you get the most efficient space.
Corporate lease can be a bit complicated. But our suggestions will help navigate the legal jargon effortlessly.
It is essential to conduct research before determining the best corporate lease. Mainly, you should look into the landlord, owner of the building regulations, zoning laws and environmental regulations, and nuisance law.
Be aware of the amount you’ll need to pay, the exact amount you’re paying, and how much your rent will rise every year. Certain leases have additional payments (e.g., maintenance, insurance, or utilities), and others combine all your costs into one lump sum each month.
Set out the procedure for how you will transfer your lease if your company closes or you relocate. Two possible scenarios are the assignment of lease that allows a different business owner to assume the lease and to sublet ultimately.
This guide is intended for entrepreneurs and business owners who want to lease commercial space and make sure they know the terms of the lease.
The difference between Corporate Leasing and Corporate Rent.
The difference between Corporate Leasing and Corporate Rent.
Corporate Leasing means a contract between two parties, in which one of them lets the other manage this asset during a specific time frame but not purchase it. It’s not like renting, but it is an alternative to it.
Corporate Rent is a contract for a short period between the landlord and the tenant that requires the tenant to pay rent for the use of a property like a building, land, automobile, or other. The landlord owns that.
Here are some significant differences between rent and lease:
1.Leasing is a contract between a lessor and lessee, wherein the lessee purchases the asset and lets the lessee use it for a specific time. Renting permits another party to utilize the property for a limited duration in exchange for a predetermined amount.
2. The lease term is lengthy, while rent is short-term.
3. There are two parties to lease agreements, i.e., the lessee and the lessor. In contrast, the tenant and landlord are the parties to be considered in the event of renting.
4. The tenant pays the lease rental to the lessor, while the tenant pays the landlord’s rent.
5. Repairs and maintenance are the lessee’s responsibility when there’s the finance lease; however, for operating leases, the expenses are the lessee’s responsibility. In a rent agreement, in contrast, the landlord is responsible for the costs of maintenance and repairs for the asset.
6. The conditions and terms of the lease are not altered until the lease expires. Instead of rental, the tenant has the right to modify lease terms or conditions contract before giving notice before the tenant.
7. The rental contract can be renewed automatically; however, it isn’t the case for a lease.
8. After the expiration of the lease, the lessee has the option to purchase the property at a residual cost. This option, however, is not offered for rent
Corporate leasing in India: Important terms to be aware of.
While this list doesn’t cover every term you might see on corporate lease agreements; however, it summarizes the terms you’re most likely to encounter.
Base rent or the amount of rental.
This amount is calculated using the area of the property. Check to ensure that the landlord’s figure is the usable area. This is the measure of space reserved for the business tenant in the case of shared spaces.
The rent increases.
The percentage of your total rent generally determines rent increases, but that may fluctuate. You may negotiate with your landlord to limit rent increases.
The security deposit.
This amount the lessor will hold the space until the lease is signed. The amount must be mentioned in advance as well in lease agreements.
Length of contract.
Corporate leases typically range from three to five years because commercial landlords favor longer lease conditions. The lease agreement usually defines the start and the end dates for the lease.
This part of the corporate lease agreement sets out the kinds of upgrades and enhancements that could be done to the property and who is accountable for the cost. The bottom line – be sure that you know the terms and conditions of commercial lease contracts and feel at ease before signing them.
This clause says that the landlord will hand his property to the tenant after all the terms (e.g., payment of the security fee) are met, and the tenant has accepted possession of the premises from the landlord.
This is the date when the tenant can take over the property. It is often defined as the date on which the tenant is responsible for paying rent and maintenance of the property rental.
Both parties can accept an agreement extension in writing, and the parties must sign the extension.
The late charge.
If the tenant is late in paying rent, they’ll incur the late fee defined in the agreement for leases on commercial property. It can be a fixed fee that is a fraction of monthly rent.
This section outlines the tax burdens associated with your property (property taxes or other related taxes) and who’s accountable for their payment. There might be subtopics like a contest of Taxes (the tenant can contest the amount of real or personal property taxes they are accountable to pay) and Payment of Ordinance Assessments (the tenant typically pays all assessments of ordinary value, which are mandatory, as well as extraordinary assessed, which can be disputed) and changes to Method for Taxation.
Obligation to fix.
This section states what kind of repairs the landlord is required to carry out – for example, defects in the property or materials crucial for the proper operation, electrical failure, to name a few. The section also details the repairs tenants are accountable for.
Both parties must get all necessary permits to carry out repairs or improvements at the rental location. The terms used in these covenants differ for the landlord and tenant as each has its collection of agreements. For instance, a covenant could stipulate that the tenant is obligated to be able to afford rent, even if the landlord fails to adhere to certain obligations according to the lease.
Indemnity for tenants.
This clause essentially takes away all responsibility from the tenant in case of any injury, loss, claim or loss, claim, or damages, unless such circumstances are the direct result of intentional acts or omissions or negligence by the landlord.
This section states if the rent will be adjusted or eliminated in the event of property damage from a fire or other natural disaster.
This clause is frequently overlooked, yet it’s vital. It governs what happens when you are forced to take the property away from an owner by a government agency for public use, whether through condemnation or eminent domain.
Option to Purchase.
This clause states that, at any point throughout the tenure, the tenant will have the option of purchasing the property at an agreed price. This clause isn’t a requirement, but it’s not bad adding it. It could also say that the tenant doesn’t be entitled to buy the property within the lease terms. In any case, it’s best to put it written down.
Set a Budget
What is the maximum amount you are able to afford for rent? Most businesses are operating under the 30-30-30 rule. Although this number isn’t fixed in stone and may differ based on the kind of business, it’s an excellent start for any new business which don’t have a couple of years’ worth of specific expenditures that they can refer to.
Assume that 30 percent of your earnings will be put towards Cost-of-Goods (products used to create a final product and then sells it), and 30% of the money will be used on Overhead (rent and utilities, corporate lease charges, payroll, taxes, etc.) And, in an ideal scenario, the remaining 30% would be put aside as profit. From this figure, you can identify your overhead costs and what percentage of that 30 percent could be allocated to rent (perhaps in 5 to 10% of your projected income).
Determine how much space you need before even thinking about corporate lease.
The amount of space you will need to run your business today and the years to come must be considered before looking for space.
Start by taking measurements of how much square footage is in your current area. Do you require more or less space than you do right now? Choose a suitable range for the parameters you are looking for (i.e., 1,000-2,500 SqFt; 5,000-10,000 SqFt; 20,000-50,000 SqFt).
When looking for a new location or selling a service or product to the public, research the location and determine the potential customers you could be targeting. Location is everything for a small-scale business to succeed; so, when searching for the perfect properties, make sure you take the time to find the ideal location for your company. This process might take up to a year or longer, so ensure you are prepared if the end of your lease is near.
Find out more information about the property owner and the landlord.
Sometimes, the landlord you are directly dealing with could not be the actual owner of the building. Whatever the case, learn everything you can about your building owner and the landlord. It’s a business partnership that you’re entering with them, so ensure that you know who they are, their financial status, and if they have the right to collect payments for the space that you are trying to lease.
In certain cases, for instance, the landlord who is unable to pay rent payments to the owner of the building may be forced to leave even if the company has delivered on time for each payment. This is just one instance of how the relationship between landlord, tenant, and the building owner can be strained.
Map a Search Area
Make a list of cities and towns that you can use to narrow your search for commercial spaces. Choosing where you would like your company to be and where it could be located is not always identical.
There are a variety of aspects to take into consideration when choosing the search area. For example, the customer service area can determine location, the number of similar businesses located in the vicinity, and the kind and size of space you’ll need or the type of use the city or town will permit.
Find out about laws and the environment.
The most significant advantage of signing a corporate lease is the capacity to run your business to the fullest extent once you have opened your doors. Most leases include extensive provisions regarding noise, smells, and equipment.
It’s also crucial to learn basic environmental laws that apply to the property before signing any corporate lease as landlords are often in violation of these laws and may be used to sabotage your company.
Contact a commercial real estate broker to get help with corporate lease
If you’ve identified the kind of space, you want you can begin your search for a professional commercial real estate broker or an agent.
A commercial broker or an agent can be described as an expert within the commercial property with ample knowledge of corporate lease laws and current property prices. In contrast to a residential broker, who might know about the housing market, commercial brokers have experience and knowledge of the retail real estate market and consequently, they can be quite different.
As an accountant for tax purposes, is up-to-date with the latest tax laws, and is equipped with the newest software for processing tax returns, commercial real estate brokers don’t just keep track of the market. They also contribute and pay for databases and software (exclusively commercial), which other brokers do not.
Commercial real estate agents or developers like Vacanza can assist prospective tenants in finding suitable properties for their needs. Property owners employ brokers, and, most of the time, they are compensated an amount for broker fees by the owners.
So, what is this means to entrepreneurs looking for a space to lease?
This means that in the majority of cases, they can reap the benefits of working with a skilled, knowledgeable commercial real estate agent who understands the market, understands your business needs and meets them.
Corporate lease in a nutshell.
There are some critical aspects of corporate lease to be aware of when looking over your lease. First, the structure of your rent is likely the most fundamental and crucial element of any lease. By knowing how much you will pay each month and how much your rent is expected to rise each year, you’ll be able to establish budgets and understand whether you can stay operating in the new area.
Lease terms are crucial. Take a look at short-term and long-term leases. Long-term leases are an excellent investment when opening your company in a new or growing region. In contrast, short-term leases allow you the option of moving locations or shutting down your business if it fails to perform the way you had hoped.
Concerning payment structure and terms, be aware of what you’re charged for every month. Talk the prospective landlord about how these expenses will be to be paid:
- Taxes on property
- Maintenance (both exterior and interior)
- The local law (noise or smell)
- Utilities (water, gas, electric)
- Modifications (whether you can alter the exterior or the interior of your room)
Once you’ve established your initial pricing and term structure, it’s time to delve into the more obscure specifics. Although your lease may differ by state, here are helpful examples of laws you should be aware of before signing an agreement:
Transfer structure: Determine how your lease is transferred if you decide to vacate the premises or your company closes. There are typically two transfer methods: 1) Assigning the lease and 2) Subletting. The lease is assigned, which means the lease in its entirety is transferred to the new tenant. Subletting occurs when a current tenant holds their title on the lease but receives a payment from the new tenant and transfers the money over to the landlord. It is common to obtain prior written consent before the lease transfer in both situations. This is a crucial element of your lease to work out.
- Personal risk: It is possible to provide personal guarantees when signing the commercial lease in certain situations. You’re personally responsible for lease-related issues even though your business fails to pay.
- Rent held over: Holdover rent is a rental rise when a tenant remains after the corporate lease expires. Often when companies are moving offices in the process, they are forced to stay longer than the lease permits when the new lease is being negotiated. In many cases, landlords have a clause stating that the business is responsible for 200% of their regular rent payments per month. Therefore, if you go through your lease and do not pay, you could spend a huge chunk of your profits as a overstay rent. It is suggested negotiating this point to a level of around 125% of the original rent amount.
- Non-disturbance agreements: The company is still evicted even if you’re paying all your payments in many instances. By signing a non-disturbance arrangement in the event of this happening, you can stay in the building and pay the entity that took over your tenant’s property.
If you need a commercial real estate in Surat, Vacanza is the right place for you. Visit our website, or call us today at +91 81284 13205 to get the best commercial spaces in Surat! You can also follow us on Facebook and LinkedIn to keep up with our latest projects and offerings! We are here to transform the city!