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How a commercial real estate transaction can affect a company’s success

On Behalf of | Apr 25, 2024 | Real Estate

The right facilities can make all the difference for a growing a new company. Organizations may need a space in which to manufacture products or a retail outlet to sell items to customers.

Acquiring commercial real estate can be a complicated process. Business owners and executives have to make certain important decisions when looking for commercial facilities. Do they buy or lease? If they lease, what terms do they deem acceptable? How a business handles a real estate transaction can have long-term implications for its future success.

The pros and cons of a purchase

Purchasing a property can be a smart business decision. The facilities become one of the assets that the company owns. Instead of spending money on rent every month, the business slowly accumulates equity in the property. The organization has total control over what happens with the property and how the company uses the space.

The drawbacks include difficulty countering an unrealistic price and being locked into a specific location. Acquiring financing for a commercial property can be more of a challenge than business executives anticipate, which could delay or prevent the acquisition of commercial space.

The pros and cons of renting

Leasing commercial space can be a wise decision in several scenarios. Those operating a startup may the uncertain about how long it may take to generate profit and how successful the company might become. A commercial lease requires less commitment than a purchase.

Of course, the trade-off is that there is no equity accumulated. The landlord may charge both rent and maintenance fees, which can add up to hundreds of dollars a month. Common area maintenance (CAM) fees can vary from month to month, making it more difficult for commercial tenants to budget. A landlord might also pass maintenance responsibilities to a commercial tenant in a lease. It can be difficult to negotiate a commercial lease that involves the right costs and the right terms. Many commercial leases last for two years or longer, creating a major commitment on the part of the organization.

Negotiating for the best terms and carefully reviewing a contract are both important steps in any attempt to rent or purchase commercial real estate. Business owners and executives may require support when seeking premises for a business to ensure they obtain appropriate terms and sign documents that actually protect them, not just the landlord or seller. Seeking personalized legal guidance is a great way to get started.