Leasing guide for businesses in Philippines

Starting or expanding a business in the Philippines often involves finding the right location. For many, leasing commercial space is the most practical option. But before you sign any documents, it’s important to understand the ins and outs of commercial leasing in our country. This guide will walk you through the process, from locating the right property to fully grasping your lease agreement, highlighting crucial aspects specifically for doing business here.

Types of Commercial Spaces

The first step is knowing what kind of space suits your business. Here in the Philippines, we commonly see these options:

• Office Spaces: These can range from small individual offices in shared workplaces to large corporate headquarters. Consider if you need a prestigious address in Makati or Ortigas, or if a more affordable location in Quezon City or the provinces would suffice for your business needs.
• Retail Spaces: Ideal for shops, restaurants, and service providers. Locations in malls, stand-alone buildings along busy streets, and those within commercial centers are popular. Think about foot traffic and visibility; a corner spot in a busy mall can be pricier but may attract more customers, while a strategic location in a local palengke might better suit some businesses.
• Warehouse Spaces: If your business involves storage and logistics, these spaces are essential. They are often found in industrial areas outside Metro Manila but are also available in provinces like Cavite and Laguna, which are rapidly industrializing.
• Industrial Spaces: These are suited for manufacturing and production, usually located in industrial zones across the nation. Check the vicinity’s accessibility, as the distance from main transport routes is crucial for handling logistics regarding materials and products.
• Mixed-Use Spaces: These combine different types of spaces, such as residential units situated above retail ones or office spaces within a commercial complex. Such developments have become increasingly popular; you’ll see many mixed-use projects in Cebu and Davao, not just Metro Manila.

Finding the Right Property

Once you have a solid idea of the kind of space you need, it’s time to look for suitable options. Here’s a guide on how to approach it:

• Networking: Start with your personal connections. Your friends, family, or acquaintances may have information about spaces available for lease before they’re openly advertised. Use your network; ask around in your local community, as word-of-mouth can work wonders here.
• Real Estate Agents/Brokers: They can assist you in finding commercial properties that fit your needs. Look for brokers who specialize in commercial leasing, as they often have access to listings that are not available to the general public. Verify that they possess the proper licenses and check their reputation for your peace of mind.
• Online Platforms: Real estate portals like Lamudi, Property24, and other local websites list commercial properties along with residential offerings. Utilize online tools to filter properties based on your preferences—whether it be price, location, size, or type.

Remember, the location of a business in the Philippines is more than just an address; think about accessibility for clients and employees. Take into account traffic, transportation options, and parking spaces. A property located in a congested area, even if it seems central, could be a bad choice if accessibility is an issue for your business.

Understanding Lease Terms

The lease agreement is a legal contract that outlines your obligations and rights. Understanding the fine print is vital. Key elements include:

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• Lease Duration: Commercial leases typically range from one to five years, or sometimes even longer for more substantial spaces. A longer lease generally offers more rent stability, while a shorter one affords more flexibility.
• Rental Rate and Payment Terms: The agreement will specify the monthly rent amount, payment schedule, and the currency of payment. Rent reviews often outline how frequently and by how much the rent can be increased during your term.
• Security Deposit and Advance Rent: Expect to pay a security deposit, typically ranging from one to three months’ rent, which is usually refundable upon exit, along with advance rent that usually covers a month or two at the beginning of your lease term.
• Use Clause: This clause defines how the space can be used. If you plan to open a restaurant, for example, the agreement must allow for such use. Be cautious; changing this later may lead to conflicts.
• Maintenance and Repairs: Clearly define who holds responsibility for the property’s maintenance and repairs. In some cases, tenants are expected to handle smaller issues, while landlords cover larger repairs and structural problems.
• Improvements and Alterations: If you intend to renovate the space, ensuring that this agreement is in writing and approved is crucial. A tenant once had to remove plumbing installations meant for a restaurant after violating the contract by not informing the landlord.
• Renewal Options: A right of first refusal gives you the option to extend the lease before the landlord offers it to others. This safeguard is typically included in lease agreements.
• Default and Termination: Understand the circumstances under which either party can terminate the lease. Know your responsibilities in case of default, along with the landlord’s rights.

Never rush through reviewing the lease agreement; always ask for a copy ahead of signing so you can read it carefully. It is highly advisable to have it reviewed by a lawyer specializing in leasing to gain a complete understanding of the contract before making any commitments.

Negotiating Your Lease

Lease terms are not always set in stone. Here are some key points to keep in mind when negotiating the lease agreement with your landlord:

• Pricing: Check if you can negotiate the rental rate or possibly request a longer grace period before any rent increases. A fruitful opening discussion can save you money in the long run. Also, compare with neighboring rent rates for reference.

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• Improvement Allowance: Ask if the landlord can assist with tenant improvements, such as updates to painting or flooring. This can be especially helpful if the property requires some enhancements before you move in.
• Inclusions and Exclusions: Confirm if the monthly rental rate encompasses association fees, parking slots, or utilities, and ensure the agreement accurately stipulates what the landlord remains responsible for.
• Flexibility: Seek flexibility in lease duration if your business requirements are not entirely fixed. A clause allowing early termination with appropriate notice might be beneficial.

Post-Lease Considerations

Your responsibilities do not end upon signing the lease. Here are some post-lease factors to consider:

• Maintaining Records: Keep all lease documents organized and secure. Having a complete copy—especially one where you’ve noted the payments—you have made can prevent future conflicts with your landlord.
• Insurance: Ensure you have adequate insurance to protect your business assets within the leased space. Consider consulting an insurance broker to obtain the best coverage.
• Landlord Relations: Foster a cordial relationship with your landlord. Having good rapport can facilitate smoother communication should any issues arise and can be beneficial if you require flexibility with the lease in the future.

FAQs

What is the difference between a gross and a net lease?

In a gross lease, the tenant pays a fixed rental amount while the landlord covers operating expenses such as property taxes, insurance, and maintenance. In contrast, a net lease dictates that the tenant pays a base rent and also covers certain operating expenses—often in addition to the monthly rent. Always factor in the total costs that each type of lease requires you to pay.

How much is the security deposit typically?

Security deposits usually range from one to three months’ worth of rent, depending on the property’s nature and the landlord’s preferences. It’s worth negotiating for a reasonable amount, especially if your business is newly established and your cash flow is limited.

Can I sublease my rented space if necessary?

Subleasing is only permissible if the agreement allows it. Many contracts either prohibit it or require you to obtain the landlord’s prior approval before proceeding to sublease the property. Ensure your contract explicitly permits subleasing, as you may be held liable if you do so without permission.

What happens if I need to break my lease contract?

Penalties for breaking contracts are generally outlined in the lease agreement. You could lose your security deposit or have to pay specific termination fees, often equivalent to several months’ worth of rent. It’s advisable to negotiate some flexibility in your exit terms when you sign the lease, just in case circumstances require you to move out before the end of your agreed term.

Do I need a lawyer to review my lease?

While it is not mandatory, it is highly recommended to have a qualified lawyer review your lease agreement. This ensures a thorough understanding of the terms and conditions in the contract. The cost of legal assistance is minimal compared to the protection of your rights and interests.

Call to Action

Leasing commercial property in the Philippines is a major step for any business owner. By comprehending your needs, carefully examining lease agreements, and negotiating effectively, you can find a space that significantly contributes to your business’s success. Take your time, educate yourself, and make well-informed decisions as you embark on this journey!

References

Civil Code of the Philippines

National Internal Revenue Code of the Philippines

Local Government Code of the Philippines

Philippine Real Estate Regulations