Differences between Apartment & Commercial Leases

Renting a storefront like this will probably be quite different from renting an apartment or a house.

I’m not really sure how people learn about renting out apartments, but by the time they hit the market for the first time they generally have a basic idea of the premise. You pay someone money and exchange you get to live in their building. They handle the maintenance (for the most part) and you leave their building in decent condition when you depart. Easy enough. There are some variances from area to area in terms of what utilities are customarily included and how large/small/old/new the buildings are. Even so, a relative newcomer to apartment hunting can figure it out despite language barriers and regional variances.

I’ve been working on leasing out a retail storefront in Irving Park lately, and have realized that with commercial spaces the learning curve is far more complex – possibly because business owners come in with preconceived notions based on how the rental housing market works. However, once you switch over to renting out commercial property the whole thing goes out the window. America in all of its messed up glory offers an entire menu of options, arrangements, terms and add-ons for business owners. Meanwhile I’d like to take today to explain a bit about the differences between renting an apartment and renting a storefront, office or other commercial property. If you’re out to start your own business or purchase a mixed use building (maybe with my help?) you can use this as a bit of a guide. If you’re working for a company that leases their space, maybe this will give you an idea of why your boss keeps stressing out about the rent.

Handy Chart For Comparison

Residential Commercial
Leases are usually a year long at most, or month to month. Leases can run for many years, sometimes for decades, with rent increases built in.
Rent is a flat rate set at the beginning of the lease. Some pass-thru utilities may vary slightly. Rent may be a flat rate, but is often based on a percentage of the rolling net income of the tenant's business.
Rents are based on number of bedrooms, proximity to neighborhood attractions and building amenities. Rents are based on square footage, foot & vehicle traffic, zoning, and some building amenities.
Landlords generally don't like it if you take out walls & rearrange the space. You're pretty much expected to rearrange walls & redecorate to suit your business. You may be able to get a concession on the first couple months of rent while you do so.
You move into an existing structure. In some cases like ground leases, you lease bare dirt and have to build your shop outright. The landlord gets it when you leave. Believe it or not, this is a popular way for large chains like Walgreen's to expand.
You can expect the landlord to handle maintenance, pest control, property taxes and umbrella insurance premiums. If you're in what's called a "net lease" you're paying a share of taxes, insurance & maintenance costs, usually prorated proportionately to the size of your space. In a "double net" the tenant handles all of the property taxes & insurance. In a "triple net" the tenant handles all maintenance costs, too. Only a "gross lease" and some small storefront flat-rate leases are true parallels to the standard residential apartment lease.
Utility payment policies will be the same for all residential units in the building. (e.g., if the landlord pays for heat & water for one apartment, she pays for it in all of the apartments in the complex.) Even if the renters in a mixed use building get their heat & water included, that doesn't mean the downstairs shop owner does.
Leases use boilerplate text with very few variants due to Chicago's complex residential landlord-tenant laws. Leases can run for pages on end and each one can be quite different. Pay attention. Bring your attorney.
You can expect to receive disclosures of potential environmental hazards like lead & radon gas before moving in. No such disclosures are required. In fact, while the EPA strictly governs disclosures of lead-based paint hazards in residential spaces, they currently hold no jurisdiction over public & commercial property. A proposed rule was tabled in 2010 to expand the EPA's lead paint jurisdiction beyond residential but it seems to have died.
You can reasonably expect that it is legal for you to inhabit an apartment advertised for rent, aside from a few illegal garden apartments. You are responsible for verifying zoning and licensing law requirements before assuming that you can do business in any old storefront.

(PS: A fellow over on Posterous is starting a Chicago leasing agency focusing on retail spaces. He calls the current process of renting retail space akin to a “giant sucking sound” and wants your comments as to how to make it better.)

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