How to Analyze a Commercial Property Lease for an Industrial Property

As a business owner or property investor, analyzing commercial property leases is an essential part of your due diligence process. Leases can be complex legal documents that require a thorough understanding of the terms and provisions. In this post, we'll provide practical tips on how to analyze a commercial property lease for an industrial property.

1. Understand the key terms

Before you dive into the details of the lease, it's important to understand the key terms that are specific to industrial properties. These may include:

• Rentable square footage: This refers to the total area of the space that is available for rent, including common areas such as hallways and restrooms.

  Load-bearing capacity: This refers to the maximum weight that the floor of the space can support, which is important for industrial properties where heavy machinery may be used.

  Clear height: This refers to the height of the space from the floor to the ceiling, which is important for industrial properties where tall equipment or machinery may be used.

  Zoning requirements: This refers to the local regulations that govern the use of the property, such as the types of activities that are allowed and any restrictions on hours of operation.

2. Review the lease term and renewal options

The lease term and renewal options are important considerations when analyzing a commercial property lease. For industrial properties, it's common to have longer lease terms than for other types of commercial properties. Review the lease term to ensure that it aligns with your business or investment goals, and check the renewal options to ensure that you have the flexibility to extend the lease if necessary.

3. Understand the rent structure

The rent structure is another important factor to consider when analyzing a commercial property lease. For industrial properties, it's common to have a triple net (NNN) lease structure, where the tenant is responsible for paying a portion of the property taxes, insurance, and maintenance costs in addition to the base rent. Make sure you understand how the rent is calculated and what expenses you will be responsible for.

4. Check for tenant improvement allowances

Industrial properties often require specific improvements to accommodate the needs of the tenant, such as installing a ventilation system or reinforcing the floor to support heavy machinery. Check the lease for tenant improvement allowances to ensure that you have the budget to make necessary improvements and that the landlord is responsible for any major repairs or renovations.

5. Review the termination clauses

Finally, it's important to review the termination clauses in the lease to understand your options if you need to end the lease early. Look for clauses that allow for termination due to specific events, such as a change in ownership or a major catastrophe, and make sure you understand the notice requirements and any penalties or fees that may apply.

Conclusion:

Analyzing a commercial property lease for an industrial property requires a thorough understanding of the key terms and provisions that are specific to this type of property. By following these tips, you can ensure that you have a clear understanding of the lease and can make an informed decision that aligns with your business or investment goals.