Industrial Property Leases 101

Industrial property leases are different from residential leases. Today, we’ll cover different types of commercial / industrial property leases you might find here in Jackson, MS. We’ll try to touch on everything you should know before getting involved in an industrial property lease.

This article is geared towards inexperienced lessors / lessees. If you’re a young entrepreneur expanding out of your garage, or a future CRE mogul looking to build a commercial property empire in Jackson, you’re in the perfect place! If you’re an expert in property management already, visit our other blogs for more advanced topics. 

Let’s get started with a few basic definitions. 

Language Used in Industrial Property Leases, For Newbies

You’ll need to be familiar with these terms as you move forward with a commercial property lease.

The lessor is the owner of the commercial property. The lessor can be a human or an organization. Any specific responsibilities they have will be in the contract, so read it thoroughly. These could include issues like:

  • Security
  • Property taxes
  • Cleaning services
  • Landscaping / gardening
  • Certain utility bills
  • Building upgrades
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The lessee is the person (or business) who is leasing the property. In addition to paying the rent on time, the lessee might be responsible for:

  • Property taxes
  • Utility bills, wholly or partially
  • Property insurance or business insurance

The agreement between the property owner and the lessee is a contract, and it is legally binding. For instance, if your commercial property lease spells out that you’re responsible for the property taxes, and you neglect to pay them, you can be sued by the property owner.

Elements of an Industrial Lease Contract

Since industrial property is used differently than a home, commercial leases have more components, and contracts are specific to each tenant. There is no required format for the contract, but most cover these elements:

  • Leases can be short-term or long-term. They can last for 30 days or two years. Regardless of the length of the lease, it will have specific beginning and end dates.
  • An industrial property lease will specify the cost of rent, usually monthly. Remember, some landlords include property insurance and taxes in the rent, others don’t.
  • The lease should designate which party is responsible for repairs.
  • It should clarify who is responsible for paying for building maintenance.
  • The lease will usually include specific language about subleasing or conditions of default that can protect your business. Subleasing / subletting is the act of renting out a portion of the property to a third party — like renting one room of the industrial space to your brother-in-law for profit. This may or may not be allowed. 

Most leases include a section that discusses your options for renewing the lease after a certain length of time. Your future renewal terms are usually somewhat negotiable with the lessor, especially if you’re a quality tenant who pays the rent on time. But they are an essential guideline for your long term business plans.

Now, let’s get into industrial lease contract types. 

Types of Industrial Property Leases

Again, commercial property leases may work differently than a typical residential lease. As an entrepreneur, you should understand different types of industrial property leases. This will make your discussions with the property owner more comfortable and help you decide which type of lease will work best for your business.

Per Indeed.com, common lease types are:

  • Full-service: the tenant is only responsible for the rent. The landlord covers all other costs associated with the property. This is the most common type of industrial lease. It provides the most protection to tenants. (We’ll talk more on that in a moment.)
  • Single net lease: the tenant pays for rent and property taxes.
  • Double net: the tenant pays for rent, property taxes, and property insurance. 
  • Triple net: the tenant is responsible for rent, insurance, taxes, and property maintenance costs.
  • Percentage: the tenant pays a pre-determined base rent, plus a portion of their overall sales. Percentage leases are more common in retail spaces, but they’re not unheard of in the manufacturing sector.

If this is your first time leasing industrial space, you’ll probably be most comfortable with a full-service contract. This leaves you with a single rent payment and no concerns about the landscaping, roof repairs, property insurance or taxes. 

However, full-service leases do come at a cost! If money is tight (when is it not?) you might find a more affordable option with a single, double, or triple net contract. An overwhelmed landlord might be eager to shrug the responsibilities of taxes and maintenance. Still, as commercial real estate pros, we’d suggest you move forward very carefully with these types of contracts. Building maintenance and repairs can get costly — and savvy lessors know it.

It’s important to look at several industrial spaces in a neighborhood before making your choice. Even if you don’t know the contracts’ specifics at each property, you’ll get a good idea of the price per square foot and amenities available.

Then, it’s time to get down to the brass tacks of negotiation.

Negotiating the Lease

You don’t need to accept the first contract a landlord offers. Here are a few tips for negotiating industrial property leases:

  • Read the entire contract, ask questions, and sleep on it before you sign.
  • Landlords can hide fees in complicated “legalese.” Get a lawyer or CRE professional involved.
  • If a landlord is firm on rent price, you might be able to negotiate for extra benefits, like an allowance for renovations.

Finally, remember that you don’t need to be a lawyer to lease a great industrial space. 

Here at Speed Commercial Real Estate in Jackson, we know that most lessees aren’t attorneys. If you don’t speak fluent “legalese,” that’s okay! The staff at Speed is ready to help you understand industrial space leases and negotiate the best bang for your buck. Whether you’d prefer a massive, modern facility or a historic property, we’re ready to help you find the right Jackson area industrial space. So let’s talk!

Related Reading & Resources:

Indeed.com: An Entrepreneurs’ Guide to Leases for Commercial Property

NeighborhoodScout.com Jackson, MS Appreciation and Housing Market Data

10 Factors To Consider When Choosing A Warehouse in Mississippi

If you are contemplating investing in a warehouse in Mississippi for your business, you are not alone. Demand for warehouse space is on the rise in the Magnolia State, with the Jackson industrial market now spanning 40 million square feet. But if you’ve never purchased warehouse space before, you may not know where to start.

The good news is that the selection process is easier than it may seem. The key to choosing the best warehouse for your operations is to reach out to an experienced commercial real estate professional who can help you evaluate local prospects. Additionally, it’s a good idea to consider the ten factors below as you compare available options.

1) Size

Size is perhaps the single most important variable to consider as you launch your search. Ideally, the warehouse you secure should be large enough to comfortably accommodate your inventory, equipment, and employees, while providing room for growth. Here are some questions to ponder:

  • How much space will you need for employee workstations?
  • What type of clearance is required for cranes and other loading and lifting devices?
  • How much, if any, inventory do you plan to store in your warehouse?
  • What are your plans for growth or expansion in the next 1-5 years?

2) Cost

The cost of warehouse space tends to increase along with square footage, amenities, and location. Many first-time warehouse buyers are surprised to see how much money they can save by choosing a location that’s rather far from popular business centers and industrial parks. But before you commit to a warehouse that’s off the beaten path, remember you want to remain accessible for employees, clients, and visitors. Additionally, you’ll want to inquire about any taxes you will owe, as this may ultimately influence your decision.

3) Loading and Receiving Docks

If you receive or ship freight several times per day, you will need a warehouse with at least one loading dock – preferably multiples. Otherwise, your pickups and deliveries could rapidly begin to stack up. If you already handle multiple incoming and outgoing shipments each day, it’s best to choose a warehouse with at least two loading docks – one for your incoming receivables and one for your outgoing orders.

4) Office Space Needs

Not all warehouses feature office space, so it’s important to take a few minutes to sit down and make a note of any employees who will require an office or cubicle. If the majority of your office staff works remotely, your breadth of options will significantly increase. Otherwise, you’ll need to choose a warehouse in Mississippi with existing office space or gather the resources to build interior offices on your own.

5) Accessibility

Fast, timely deliveries are a must in today’s world of impatient consumers. While there may always be a few variables beyond your control, you can help ensure that orders are received and shipped on time. One of the best ways to achieve this goal is to choose a location that is not too far from interstates and main thoroughfares. The less time your orders spend in transit, the faster your customers will receive them.

empty-warehouse-with-concrete-floor-and-support-pillars

6) Climate Control

Climate controlled warehouses offer a host of advantages. They help keep inventory from spoiling or becoming moldy, while also helping to preserve the integrity of your products and equipment. And with average high temperatures in Jackson often exceeding 90 degrees during the summer, you can help keep your employees cool by choosing a warehouse with climate control.

7) Security

As a business owner or operator, it’s up to you to provide a safe, secure environment for your employees and visitors. Some warehouses in Mississippi are already equipped with integrated LED emergency lighting, security systems, and alarms. Other facilities may have outdated security features or lack them entirely. An experienced commercial real estate agent can often provide recommendations in this area.

8) Parking

If you have a large fleet of vehicles you regularly use, or if you have a large number of employees who drive to work at your warehouse every day, you need to choose a site with plenty of parking available. Remember, you will also need to reserve some open spaces for clients and special visitors, so it’s better to overestimate the parking space you will need as opposed to underestimating your parking needs.

9) Proximity to Ports and Airports

Are you planning to expand your business internationally in the near future? Have you noticed that you are receiving more overseas products than ever? If so, proximity to airports, railways, and ocean ports is a huge plus. You may wish to consider a warehouse that is located on the south side of Jackson to help get your shipments to port faster. And if you handle a large number of small parcel shipments, it’s helpful to have a location near a UPS or FedEx facility.

10) Room for Growth

If you are like most Mississippi business owners, you are focused on growing your revenue and expanding your business. When evaluating warehouse options, make sure you aren’t overly conservative on the space you will need – especially if you anticipate significant growth. Also, if you plan to add new cranes or other industrial equipment over the next few years, make sure you select a space with plenty of overhead clearance and room to operate heavy lifting devices.

Finalizing Your Selection

Clearly, there are many factors to consider when choosing a warehouse in Mississippi for your business. The single best way to ensure you choose the best warehouse for your business is to contact us at Speed Commercial Realty. For over 17 years, business owners have turned to us for professional guidance when securing warehouse space.  

When you reach out to our team at Speed, you will receive the personalized guidance you deserve. Our team of licensed commercial real estate agents will take time to listen to your needs and discuss your budget. Then, we will present the warehouse options that will satisfy your business demands without breaking the bank. We look forward to helping you find a warehouse in Mississippi that will take your business to the next level of success!

6 Questions to Ask Before Leasing a Commercial Property

Maybe you are moving your business out of your home office. Maybe the office space you have been using for years no longer meets the needs of your company. When you’re considering leasing a commercial property for your Jackson business, it is important that you know what questions to ask a real estate agency or landlord so that you can make an informed decision. If you don’t ask the right questions, you may find yourself in an arrangement that is not right for your company.

Preparation for Leasing a Commercial Property

The search for a new commercial space is an overwhelming prospect. Fortunately, taking the right precautions ensures that you find a facility that meets the needs of your business. However, if you are new to leasing a commercial property, or you have not done so in a very long time, you may not be sure what questions you should be asking. We put together a quick look at the most important questions that you should ask before leasing a commercial property in Jackson, Mississippi.  

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Under What Circumstances Can the Lease Be Terminated?

One of the most important leasing questions is what the exact terms of the lease are. While most commercial leases are for one year, an inital two- or three-year lease is not uncommon. It is important that you not only find out how long the lease is for, but that you also ask under what circumstances the lease is terminated. For instance, if your business’s circumstances change, or another major tenant in the building leaves and causes your business to drop, is there a way for you to exit your lease early? Try to negotiate a break clause into your lease that allows termination of your lease early. This protects you against the unexpected. Watch out for a landlord who is unwilling to negotiate the terms of the lease with you. Sometimes, this is a sign of an unfavorable landlord who will be difficult to work with when things go wrong.     

Is There a Possibility to Expand?

When you initially move your business into a commercial facility, it’s tricky to gauge how much space you actually need. This can cause a variety of problems. Say you choose too small of a space; you have no room for growth. But, say you rent too large of a space; you’re left with rent payments you struggle to afford. It’s important that you ask potential landlords about possibly expanding your business in the future if necessary. For instance, is there a neighboring space that you could expand into? Is it easy to move into a larger space, should one open up? Having the possibility to expand would allow you to lease a conservative space now while your business continues to grow. 

Who is Responsible for the Commercial Property’s Insurance?

In the rush and excitement to secure a space for your business, don’t forget to talk about insurance. It is important that you discuss insurance coverage and requirements. This ensures that your business is covered in the event of an emergency. Generally, landlords carry a comprehensive policy that covers liability for common areas such as lobbies, stairways, and elevators, and that provides casualty protection for the building itself. It is important that you find out from a potential landlord what areas of the building you are responsible for. At the very least, you likely must carry liability coverage that protects the landlord against any claims that arise from your business’s operations. For example, if a customer gets injured in your office. Make sure that you read through the landlord’s policy in full. Consult an insurance specialist and find out what additional policies they recommend you carry for your business. 

Who Else Can Lease this Property?

Of course, another piece of important information when leasing a commercial property is who the other tenants are in the building. Knowing who your neighbors are is critical. You may not want to move into a building if there is a competing business, or if a neighboring business attracts an unsavory crowd that could deter customers. It is then important that you also ask what future businesses are allowed to move in. Additionally, you should ask to negotiate limits on what type of companies move in next to you in the future. You may even be able to secure a non-compete clause as part of your lease that would ensure that no similar business can open in the business or center. 

Is the Space Modifiable?

It is also important that you ask if the space is modifiable, and if so, to what extent. The fact is that it is not usually possible to find a commercial facility that meets the exact needs of your business. You may need to do some renovations to make the space work. It is important that you ask the landlord about acceptable modifications. If no, or only minor, modifications are acceptable, then the space may not work for your company. Therefore, it is important that you find out what the rules are before you sign the lease. 

Can I Sublease if Necessary? 

Before signing a long-term lease for a commercial facility, it is also important that you find out what restrictions surround subleasing. The reality is that you may sign a 5-year lease only to discover that the space you rented is too large or too small for your business’s changing needs. If you cannot get out of your lease right away, your only option may be to sublet to another business. Before signing your lease, however, find out if subleasing is allowed. Furthermore, ask about restrictions on what kinds of businesses you can sublet to. 

Knowing what to ask a real estate agent or landlord before you begin looking at rental properties for your business can help you to make the right decision that will fit the needs of your company. Contact us to learn more about what you should ask before signing the lease on a commercial property.