Commercial rents are usually expressed in gross square feet per year (measured from the outside wall). For example, if the landlord tells you that the rent is $9.00 per square foot (p.s.f.) for 2000 square feet then the annual rent is $18,000.00 ($9 x 2000) or $1,500.00 a month ($18,000/12.)
In general, there are two types of commercial leases.
Gross Lease: A gross lease is similar to a residential lease, which you sign when renting an apartment. A gross lease is a lease of a fixed amount every month in which the landlord covers the majority of the operating expenses of a space (including taxes, insurance, repair costs, and common area maintenance costs or CAM.) The landlord might or might not pay for utilities.
Net Lease: Under a net lease, you will be required to pay rent for your space and a certain portion of the operating expenses related to the property. These expenses might include CAM, insurance costs and real estate taxes, as well as utilities. CAM costs might include your share of maintaining the common areas like the lobby, bathrooms, and elevators.
Net leases are also called “double net” or “triple net” leases, the primary difference being the amount of the operating expenses charged to you on top of your base rent. In a double net lease (Net-Net or NN), the lessee or tenant is responsible for property tax and building insurance. A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance.
The following is a quick review of typical “terms” you will encounter in a lease. Review these premises carefully before signing. A term is a legal item that you agree to follow by signing the lease.
The lease should lay out the exact location and boundaries of your space and tell you which spaces are common to the building.
Rentable Area versus Usable Area
Many commercial buildings assign a share of common areas to each tenant. Ask if the area of your space is the actual area within the space itself (the “usable” area) or “rentable” space (the usable area times the building’s “common area multiplier.”) In a building with 20% of the space used for common areas, 1000 usable square feet might actually be leased for as much as 1200 rentable square feet.
The rent figure often does not include the full cost of your occupancy. Know exactly what your rent covers. Is the lease gross or net? Will you have to pay utilities? Ask for an estimate of the utility charges for the space you are considering, including copies of bills for the past few years.
Length of Lease
Leases for commercial or industrial spaces are typically two or three years and sometimes as much as five years or more. If you like the space and want to stay for a while, seek the longest lease possible. Remember signing a lease is a legal obligation to pay the rent for the length of time for which you sign. You can also try to get an option to extend the lease. Be aware that even if you move out, you must pay the rent unless you can legally transfer the lease or sublet to someone else, which recourses would be permitted by an “escape clause.”
As part of the signing of the lease, insist that you have permission to sublease for specific categories of tenants in advance (e.g. other artists.)
Cost of Living Adjustments
If your lease contains this section, it means that your annual rent might increase. Be sure you understand the formula laid out in the lease. The cost of living adjustments might be tied to increasing operating costs.
Liability insurance is often required and can be costly. Make sure you understand whether this is required.
Fuel Operating Expense and Tax Increase Adjustments
Read this section carefully and review it with the landlord until you understand it. It might contain hidden costs. Write down your understanding of it and have the landlord sign off on your understanding, especially if the lease is not clear. If you have an attorney, this would be a good time for them to advocate for you and/or press the landlord to rewrite the lease.
What improvements or repairs are needed and who will pay for them? Before signing the lease, note everything that needs to be repaired/improved and identify which party, you or the landlord, will be responsible for each improvement. If improvements are needed, payment of rent should start after the work is completed. Be sure you know which fixtures (e.g. a new faucet or toilet) belong to you when you move out.
Living in a Work Space
A commercial landlord cannot legally sign a lease that allows a tenant to live in area that does not comply with the residential building code or is not zoned for residential use. A lease can include permission for 24-hour access, a bathroom with a shower, a cot or sofa, and a minimal work-related kitchen. If you do so, however, you are putting yourself and the landlord at risk.
If the initial deposit is too high for you, try to obtain permission to pay the deposit over several months to reduce your initial expenses.
Rules and Regulations
Some buildings have rules about elevator use, trash collection, etc. Have such rules attached to the lease or get a written acknowledgement that no such rules exist.
Ask whether and to what extent you remain obligated to the lease in the event that you cannot use the space for a significant period of time because of a fire or failure of heating system.
Heat and/or Cooling on Nights and Weekends
Some commercial buildings provide HVAC during normal business hours only. If that’s the case in your building, consider how it might interfere with your artistic practice.
How many parking spaces are there for you and visitors?
Would your fumes or dust contaminate others’ spaces or are there provisions for fume exhaust? Do the windows even open?
How would visitors find you and enter the building? Is there a simple entry system?