With interest rates low and property available, many business owners are considering buying commercial property for their offices and leasing out the unused space.
It may sound simple, but business owners need to be aware of the duties and liabilities that go along with being a commercial landlord.
John A. Mogen, president of Mogen Real Estate, says commercial landlords, beyond being responsible for the basics like utilities, building upkeep and taxes, face other maintenance, legal and insurance issues as well.
Providing basic janitorial services can be more complex than you’d think. In most cases, the landlord must ensure that the building is cleaned according to each tenant’s lease, which can add to operations costs and must be factored into the bottom line.
And the landlord’s responsibilities extend to the parking lots, keeping them free of snow and ice and ensuring they are well-lit.
Insurance and liability
Your company’s liability extends to the entire building and everyone who works at or visits the property.
All commercial landlords must have insurance, and a little upfront building improvement can go a long way when negotiating rates with an insurance company.
“If the insurance company agent says you are going to have a little less exposure liability-wise if you (fix this or update that), they’re basically saying they’ll price it better if you have a financial incentive,” Mogen says.
Consider your local zoning laws before leasing out space, because laws vary from city to city and dictate both whether an owner can sublease and what type of business can operate legally in that space.
“The tenant wouldn’t want to set himself up in business and find he can’t operate,” Mogen says.
In some cases, landlords need a building permit to make structural changes to the building, so owners should check with the planning and zoning office before moving ahead.
If you rent space to multiple tenants, there may come a time when one wants to expand into the space occupied by another tenant. Mogen says large tenants often have leases that give them rights on adjoining spaces, and the leases of smaller tenants can include a clause that permits the landlord to relocate them into equal space within the building at the landlord’s expense.
Beware, Mogen says, of offering large tenants the right to adjoining spaces without safeguarding a smaller tenant’s rights. Landlords may be willing to lose a smaller tenant or incur the expense of moving it to avoid losing the large tenant and taking the risk of not being able to replace it, but make sure the lease gives you that ability.
“When you set up a building from scratch and put a small tenant next to a large tenant, you put that kind of a clause into the small tenant’s lease,” he says. “Then your only problem as a landlord is paying a tenant to move. Even if it’s not written into the lease to begin with, you could negotiate those things and give people incentive so they’ll go along with you.”
How to reach: Mogen Real Estate, (330) 873-1200 or www.mogen.com