Leasing Space

Even if they start out at home, eBay business owners often outgrow their garages and need additional space to store inventory, serve as a shipping station, or use as their office headquarters. In these cases, the only alternative — other than leasing your neighbor's garage, too — is leasing commercial space. When you are ready to take that step, consider the following to get started.

What's the difference between a commercial and a residential lease? On the negative side, commercial leases usually last five or more years, much longer than the typical residential lease. More important, commercial tenants do not have the consumer protections — for example, strict laws regarding the return of security deposits — that apply when you rent a house or apartment. Finally, commercial leases are usually harder and more expensive to break than residential leases. On the plus side and unlike residential leases, commercial leases are usually negotiable. If there is a lot of available commercial rental space, you may be able to get a great space for low rent or a shorter-term commitment.

Finding commercial space. Start with local newspaper listings and Craigslist (under “Housing,” click “Office/Commercial”). Craigslist usually posts the square footage, rent, available amenities, location, and photos of the space. Beyond Craigslist, there are two companies that dominate commercial leasing: LoopNet (www.loopnet.com) and CoStar Group. Both sites have extensive national listings and can refer you to a broker in your area who can assist you in finding and leasing space.

Check out local restrictions. You want to be sure that any space you’re considering is okay for your business in terms of local land-use rules. Most communities have different classes of zoning for different types of business, such as retail, manufacturing, or business offices. If you’re in doubt about zoning, find the applicable rules through your local planning department (check your local government website).

When you talk about the rent. Commercial leasing usually comes in two flavors: gross lease and net lease. In a gross lease, you pay a basic rent, usually based on square footage. The landlord pays for all property expenses such as utilities, taxes, and maintenance. With a net lease you pay a fixed rental charge plus a portion of the building’s property taxes, insurance, and maintenance costs.

Things to consider when you negotiate your lease. Below are some things you should consider when negotiating your lease. For more help, read Negotiating the Best Lease for Your Business, by Fred Steingold and Janet Portman (Nolo).

  • Your Personal Liability for Rent. You’ll be personally liable for any amounts due if you operate your eBay business as a sole proprietor or a general partner. If you operate your eBay business as a corporation or LLC, the landlord can reach only the assets of your eBay business, and your personal assets are not at risk unless you signed a personal guarantee. A personal guarantee is a promise that you will pay any debts arising from a breach of the lease. In certain real estate markets favoring the tenant, the landlord may waive the guarantee, limit it to the first year or two of the lease, or ask for a larger security deposit instead. If you’re uncomfortable with a personal guarantee, keep the lease short, perhaps limited to a one-year term.

  • How Long Are You Tied to the Property? If things go bad and you can’t continue to pay rent, you may be sued for the remaining value of the lease. For that reason, you may prefer a lease of one year or less or a month-to-month tenancy.

  • What Happens If You Fail to Pay Rent? Most leases give you 30 days to “cure” your first failure to pay rent, which means you have 30 days to pay before the landlord can terminate the lease and begin eviction proceedings. The landlord also may take some “self-help” measures such as deducting the money from your security deposit (which you will then have to replace). The landlord is legally entitled to all of your rent through the end of the lease term, even if you vacate the premises. However, in most states, the landlord must take reasonable steps to rerent the space and credit the new rent money against your debt (that obligation is called “mitigation of damages”).

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