Industrial rental properties are becoming more popular for their variety of functions. If you are leasing out an industrial property, or if you are looking to invest in a property, there are some things you should know before agreeing to the terms. Before signing a lease it is crucial to understand your options and conditions. These four critical elements can help you understand your industrial rental property lease.
Net Leases
An industrial net lease is the most common lease type in commercial real estate. A net lease usually requires the tenant to cover insurance, taxes, and maintenance fees along with their rent. There are three types of net leases; single net lease, double net lease and triple net lease. A single net lease pays for one-third of the expense groups. A double net lease charges for two-thirds of the expense groups. A triple net lease (NNN Lease) entails that the tenant is paying for all expense groups. This makes it easier to manage for the landlord. In a net lease the landlord is relieved of most financial expenses.
Expansion Rights
Most industrial rental properties are leased to businesses. It is crucial to know how much space your business needs. Fast growing businesses should consider if they want to expand in the future. There are different types of expansion clauses. A Right of First Offer (ROFO) clause gives the lessee the chance to take an available space before that property is made public to the market. Another clause, known as Right of First Refusal (ROFR), is similar to ROFO, except that the property is put on the market first. In ROFR, the lessee can view the conditions that the landlord and tenant agreed to and expand under those conditions. This method guarantees an expansion. A must-take clause is when the lessee agrees to rent the whole property, despite only using a part of it. The lessee will only pay for the used space for a period of time and eventually pay for the entire property. It is important to negotiate and read the expansion rights in your lease.
Parking
A parking space is an important part of any industrial lease. The allotted parking space is dependent on the ratio of usable square footage in your property. It is also dependent on the number of employees that work on the property. On average, this ratio is low. Industrial rental properties tend to have fewer employees which decreases the amount of parking space needed. If the tenants have clients and vendors visiting often then parking can be negotiated.
Due Diligence Period
A due diligence period is given to tenants to investigate the property after a sales contract. Industrial rental properties can have many different functions to each tenant, therefore, it is important to give each tenant a flexible due diligence period to inspect the property properly. The average due diligence period is about 30 days. During this time the tenant should hire an inspector that is qualified to examine their property. Any information that could impact the lease terms needs to be discussed. This process may change the lease terms according to what is found out. This does slow down the process but it is important for the tenants and landlords. After coming to an agreement, then you can conclude the process.
Ready to Rent?
Before signing a lease on any industrial rental properties, make sure all conditions are suitable for you and your business. At Schwarz Properties, we can help you find the right industrial property to rent. Our team is experienced and qualified in helping businesses find the perfect place to grow.
