Many business owners lease commercial space for their offices, especially when starting out. Because signing a commercial lease is a huge commitment, it is crucial that you enter into the agreement fully informed.

Forbes explains a few possible issues often found in leases so you can take the right steps to avoid them. By watching out for the following, you can rest assured that the lease you choose is in your best interest.

Pass-through utility costs

Most commercial leases include terms that stipulate tenants must pay for a portion of the utility costs, while the property owner takes care of the rest. Pass-through costs should be proportionate to the amount of space you are leasing. If you are expected to pay for utilities your business does not even use, it is best to keep looking for a suitable commercial property.

Undisclosed fees

Commercial leases are often complex. As a result, it is hard to determine all the hidden costs and fees that may be lurking beneath the fine print. That is why you or your attorney should request a full breakdown of all fees prior to signing. That way you have an opportunity to get clarification on fees that seem unnecessary or redundant.

Scalability

If your business is thriving, there is always a chance that you will need more office space in the future. Accordingly, it makes sense to secure a commercial lease with the ability to scale up built in. Otherwise, you may find yourself on the hunt for a new location when your existing lease is up and the office no longer meets your needs. Think about your plans over the lease term: Will you be hiring more workers? Do you have new products under development? Are planning on acquiring other businesses? If yes, scalability should be a priority.

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When you agree to work with a business partner, you place a good deal of trust in this individual, and your business’s success and profitability may be at stake. Partnerships may start out strong and then turn sour, though, and this may happen for any number of reasons. Partnership disputes may prove costly, time-consuming and embarrassing, but there are some steps you may want to take to reduce your odds of involvement in one.

Per Business News Daily, monetary, operational and intellectual property disputes are all common among business partners. To lower the chances of you having to spend time and money fighting your business partner, consider taking the following actions.

Perform background checks on all potential partners

Anyone getting this much of your trust needs to be a person of good standing and strong moral character. Conducting a background check to find out if a potential partner has any skeletons in his or her closet, such as judgments, lawsuits or serious criminal convictions, may serve you well in the long run.

Review the books of a potential partner

If you are considering entering into a partnership with a company already in operation, ask to view its financial and accounting records. Most entities consider this a reasonable request and should comply with little, if any, issue.

Determine dispute resolution tactics

You may also want to discuss what dispute resolution methods you plan to use in the event of a partnership dispute before one arises. You may, for example, agree to try to mediate disagreements before entering into litigation.

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When it comes to commercial real estate, the traditional option involves purchasing your own real estate properties. You can then hire property managers to take care of the grunt work and profit off the top. Some California investors may even prefer to manage the properties themselves. 

Over the years, REITs have grown in popularity. These allow investors to take an even more distanced approach from real estate investment and management. NerdWallet also reports that shareholders generally receive consistently large dividends. Is this the better option for you? 

Branding

For some people, anonymous ownership works as long as it pays the bills. However, this does take away from your ability to build a real estate brand and pass on a true legacy to the next generation. If this matters to you, you may find it easier to achieve via purchasing your own properties. 

Passion

Some real estate investors get into the market because they love real estate. They love buying properties, flipping them, finding new tenants and managing the properties. If you are passionate and want a hands-on real estate approach, buying properties offers a better option. 

Capital

REITs require less startup capital than purchasing real estate property. This makes it especially attractive to people who want to invest in the market but lack the capital to go all the way in. It may also allow investors with leftover capital from larger investments to make use of smaller cash values not in use. 

Registered REITs perform well in the market, but they do not provide all the perks of owning properties. They may provide an excellent starting point for investors or a complement for existing properties. When managed well, those physical properties may provide the opportunity for you to create your own publicly traded REIT that other investors can pour money into. 

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Whether you happen to be a business owner looking for property space or a real estate owner that leases property to businesses, chances are that you might find yourself negotiating an office lease someday. An office lease is a type of commercial lease, and like other leases, is something all parties involved will negotiate to receive the best benefit possible.

There can be a lot at stake when it comes to negotiating an office lease. A business wants a good office location to operate out of. A property owner wants a tenant that will produce a healthy flow of rental income. If you are preparing to negotiate an office lease, Forbes explains what you might expect in your negotiation.

Negotiating for space

As a business owner, the amount of space you would want to lease would likely be one of your top concerns. Some businesses make the mistake of leasing too little space. When they want to expand later on, they find they lack the space to do so and have to renegotiate with the landlord for an expansion of space.

Conversely, some businesses lease too much space. Businesses that do not grow fast enough to justify the extra space find themselves needing to sublet the space so they do not lose too much money from leasing excessive space. If you are a property owner, you may have to grapple with whether to allow your tenant to sublease to other tenants.

Expanding the lease

Sometimes a business leases only part of a property. Other tenants might have leases on the rest of the property. As a business owner, you might want to lease another section of the property if a neighboring tenant decides to move out. To this end, you might negotiate an expansion rights clause or a right of first refusal provision to expand into a vacant space.

How to renew or end the lease

If you are a business owner, you might find that the leased space is perfect for your company and you may not want to give it up. To extend your lease, you would likely negotiate for a renewal rights clause to help you hang on to the property. But if you are a property owner, you probably want a termination rights clause that spells out what will happen if the business breaks the lease early. The business will likely want limits to damages for leaving your property early, so this could become a seriously contested point in your negotiation.

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As a California entrepreneur looking for a real estate partner, you likely already have an idea of what you want in mind. It is important to understand what you are looking for and what sort of person you work best with.

It is also important to note the ways you can keep these partnerships flourishing once you have them established. This is where tips about the dos and don’ts come in handy.

Find the most compatible partner

FortuneBuilders looks at some of the tips to keep in mind when building a real estate partnership. The first thing to keep in mind is that the right partnership in real estate is a lot like finding the perfect business partner. You can elevate each other to new heights and bring your business to the next level. Likewise, a bad business partner has the potential to stunt your growth, set you back and drag down the entire business. Thus, the first mistake to avoid is partnering with the wrong person.

Maintain a healthy partnership from the start

Another mistake: the misconception that even good business partnerships come without downsides. This is not true, as there is a give and take in any partnership. For example, some potential cons for a partnership include:

• Undermining profit totals by having to split earnings
• Healthy friendships getting strained by the stress of a partnership
• A disparity in skills or equity creating problems between partners
• Organizational conflicts due to a difference in management skills

Another big mistake is not setting terms or defining expectations and roles. When you click with a partner, you may feel like you can skip the boring details. But you need those details for a good flow of management, so you should not skimp on the planning process.

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When you invest in commercial real estate in California, you assume certain risks. Risk-taking is an important part of achieving success through investing in commercial real estate, but it is wise to manage those risks to the fullest extent possible to avoid potential problems and strengthen your real estate portfolio. 

According to Dummies.com, you may be able to reduce the risks associated with investing in commercial real estate by taking the following steps. 

Know your market 

Real estate moves in patterns, cycling through expansion, contraction, recession and recovery. Knowing where your real estate market is within this cycle should help you time your investments well and avoid making poor decisions. 

Do your research 

It is critical that you do exercise due diligence before investing in a particular commercial property. The process of inspecting the property and verifying the validity of all documents pertaining to the property may prove long and arduous, but it is a necessary part of doing business. Otherwise, you run the risk of investing in a property that proves to be a financial drain. 

Identify exit strategies 

Maintain flexibility with regard to your exit strategy. Commercial real estate is often in flux, and market conditions are prone to frequent change. Identify potential exist strategies before your deal finalizes so that you have the option to step away if you feel it presents too much risk. 

Resist overpaying

Make sure you are paying a fair price for your property. This is especially important if you are a relatively green investor, as new investors are more prone to overpaying than experienced ones. Overpaying on a particular property has the potential to impact its profitability for quite some time. 

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Commercial real estate is quite different from residential real estate in many ways, but there is one area where they are quite similar. According to REoptimizer, the law does put restrictions and limits on your interactions with your commercial tenants. 

One of the main rules that apply in both residential and commercial real estate is the right to equality. You cannot discriminate against tenants due to any protected status. 

Privacy

Your tenants also have rights when it comes to using the property and feeling secure in it. You cannot constantly enter the premises and micromanage the use of the building. You need to give notice prior to entry and make sure that you are giving your tenants privacy. 

Disclosures

There are certain things you must tell tenants prior to leasing a property. This includes anything that could cause a health or safety concern. You should disclose issues that could lead to problems with running a business in the location as well. 

Evictions

Just as residential landlords have to follow certain procedures to evict a tenant, you do, too. You cannot lock your tenant out of the buildings or force eviction without going through the proper channels. You must provide notice of the eviction with an explanation of why. 

Safe premises

Your tenants also have a right to a safe and secure premises. If there are issues that you must legally handle, then you need to do so quickly as soon as you become aware of the situation. You also need to ensure that you follow your lease and take care of anything to which you agreed to have responsibility. 

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It is common for local areas to create ordinances to help protect tenants in rental situations. According to the Los Angeles County Consumer & Business Affairs, the Los Angeles County Rest Stabilization Ordinance is a law that limits rent increases and offers eviction protections. 

There are several conditions of this ordinance that may alter protections, and it does not apply to every rental. 

Rent increases

The rent increase limit provides a restriction on how much a landlord may raise your rent in a 12-month period. As of 2020, that limit is 3%, but it changes often according to the Consumer Price Index. You should always verify the current limit before making a claim that your landlord violated the ordinance. 

Evictions

The eviction protection limits eviction rights to just cause. Potential reasons for eviction include you breaking terms of your lease or rental agreement, if you receive an order to vacate from the government or if your landlord wishes to demolish the property. It also allows for your landlord to evict you if he or she wishes to stop renting or to move his or her close family members into the unit. 

Coverage

This ordinance only covers rentals in the unincorporated area of the county. There is partial and full coverage. Partial coverage only offers protection against evictions, while full coverage provides rent increase and eviction protection. 

For full protection, your rental unit must be in an unincorporated area and have two or more rentals on the same property. It also must have a certificate of occupancy from one or before February 1, 1995. 

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Some types of insurance, such as general liability, are a necessity for all businesses, but your company may need coverage unique to your business circumstances. Likewise, a standard policy may be missing crucial clauses while some inclusions are unnecessary. 

Consider whether these types of insurance may be right for your business. 

Auto insurance

A car accident could cause damages far above what your personal auto insurance will cover, and a personal policy may not even cover driving done for work. Hired and nonowned auto policies will cover damages from accidents in your personal vehicle that you are using for work. 

If you have a company vehicle and policy, check the coverage. While $1 million coverage for liability and auto may seem excessive, that amount may actually be a safe choice. 

Key person insurance

If your company cannot remain functional without one key professional, you may benefit from a life insurance policy on that person. In the event of your key person’s untimely death, you would have the money to stay open while recovering from the loss or to close down the business. 

Business interruption insurance

As many companies have discovered, temporary closure can become permanent due to lost income. If your company is not able to fully operate because of a disaster or national emergency situation, business interruption insurance can cover some or all of your losses. 

Cyber insurance

The prevalence of data breaches may have you concerned about what a hacker could do to your company and your customers’ privacy. A cyber insurance policy may keep your company alive while you recover from a security breach. 

The amount of coverage should always be commensurate with the unique level of risk your business faces, which may require a careful analysis to determine. 

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If you are thinking about evicting a tenant, there are many factors to go over. For example, you have to think about the financial side of eviction, as well as the feasibility of discussing these matters with your tenant. On their website, the Office of the Attorney General provides a number of helpful tips for landlords who are considering evicting a tenant. From security deposits to property damage and legal action, there are many factors that landlords in this position need to consider.

Evicting a tenant is often very stressful. However, carefully going over key considerations helps landlords approach the process correctly.

Eviction and legal action

Sometimes, landlords find themselves in court as a result of an eviction. For example, some tenants accuse their landlord of discrimination or file suit over financial matters. If you have to take a tenant to court, you need to prepare for the different legal hurdles that often arise and make the right decisions. A lot of landlords are struggling with eviction during this difficult time and many are having an especially difficult time with respect to eviction.

Small claims cases due to eviction

Often, when litigation surfaces as a result of eviction, the cases end up in small claims court. Disputes which involve less than $10,000 are often handled in small claims court. If you find yourself in this position, it is imperative to carefully prepare documents and look for other strategies to strengthen your case, such as eyewitness support. Sometimes, these cases are more serious and prompt landlords to find legal representation.

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