Things to Know About Commercial Real Estate Before Signing a Contract

Commercial real estate is property that is used solely for business purposes and that are leased out to provide a workspace rather than a living space. Ranging from a single gas station to a huge shopping center, commercial real estate includes retailers of all kinds, office space, hotels, strip malls, restaurants and convenience stores.

In its most basic element, finding office space is a simple process. On one side you have supply (landlords and building owners) and on the other side you have demand (tenants looking for space). Where these two intersect you have a documented agreement in the form of a lease. This should be a straightforward transaction that mirrors the process of renting out an apartment; however, signing a long-term lease for office space can get confusing — and expensive — very quickly.

Commercial real estate (CRE) has not kept up with the times. The industry is riddled with archaic terminology, lack of standardization and limited regulation. All of this leads to an extremely inefficient leasing process, which in most cases results in the tenant paying extra money. Here are the top three things you may not know about your long-term office lease.

“Capital Expenditures” when used in a commercial lease typically refer to major structural expenditures, i.e. roof, foundation, HVAC (heating, ventilation, air conditioning) and other major repairs/replacements.

What is “standard” is different from town to town and property to property, but I typically advise clients against signing any lease that shifts the burden of these repair or replacement costs to the tenant. If your landlord is requiring you pay for these costs, there are compromises.

For example, if the lease says you are responsible for HVAC repair and replacement, suggest to the landlord that he strike “replacement” and that your repair obligation is limited to a maintenance contract, maybe two times per year, and that you be responsible for all general repairs up to a certain annual maximum amount.

Commercial real estate isn’t just shopping centers and office space. Instead, the term refers to any property used for business purposes, included residential spaces leased out to tenants and raw land that will be developed. The major types of commercial real estate, more specifically, include:

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