Commercial Real Estate: What Retail Tenants Should Consider When Renting or Buying Office Space

As a business owner, retail tenants need the right property to ensure success. But what should be considered when renting or buying an office? Commercial real estate is subject to different legal bases than residential real estate, where lawmakers and judges often prevent excessively unfavorable clauses in leases.

This article explains what people should consider when looking for a commercial property for rent or for purchase.

When renting commercial real estate, extensive contractual freedom applies

People who rent living space can be subject to many protective laws. Thus, the rental costs must be based on local rental rates. What ancillary costs may be charged and which clauses are valid for notice periods and cosmetic repairs, all this is regulated.

In commercial real estate, it is different: here, there is an extensive freedom of contract, as far as the content, form, and cancellation of the lease. It is all the more important that the negotiated contract is tailored to the business owner’s needs.

Bargaining, otherwise threatened disadvantages, and high additional costs

Protection from the competition is not regulated by law, only by jurisprudence. If it is not mentioned in the contract, protection from competition is of little concern. This protection is important, however, after all, a company’s operating profit will certainly deteriorate if the owner has to welcome a direct competitor as a neighbor.

It is far better if the owner can negotiate some positive competition protection, so the landlord may not rent other nearby spaces to competitors. A commercial right of use regulates that owners may use the property for whatever business they are conducting. If it turns out later that their type of business is not allowed, they have a special right of termination because the property does not have this type of contractual guarantee.

In addition, helpful wording in the contract can help either party terminate the agreement extraordinarily. In this case, business owners should not be tied to a lease they do not want for years.

Security or flexibility in the contract?

With regard to the possible notice periods attached to commercial real estate, it is important to determine what is more important for a business. Is it the certainty that one the landlord cannot terminate the contract early so he or she can lease it to a competitor more profitably? Long-term contracts provide security but are inflexible.

Categories: Real Estate