If you are looking to start a business or grow your existing one in the Philippines, you will likely need a commercial space. Whether you plan to open a small store, a restaurant, an office, or even a warehouse, leasing is often the most practical option to secure the space you require. This guide will help you through the process of commercial leasing and make it simpler for you to find the right place for your business to thrive.
Key Terms to Understand
Before we get into the details, let’s take a moment to learn some common terms you should know when leasing commercial properties:
- Lessor: This is the property owner you will be leasing from, often called the landlord.
- Lessee: This is you, the individual or business renting the property.
- Lease Agreement: This is the official legal contract that outlines the terms and conditions of your lease.
- Lease Term: This refers to the duration for which the lease agreement is valid (e.g., 1 year, 5 years).
- Rent: This is the fee you agree to pay to use the leased space, usually paid monthly.
- Security Deposit: A refundable amount paid at the start to cover any potential damage or unpaid rent.
- Advance Rent: This generally means paying one or two months of rent upfront before your lease starts.
- Common Use Service Area Charges (CUSA): Fees paid for the maintenance and upkeep of shared spaces, such as hallways and parking lots, in commercial buildings.
How to Find the Right Commercial Space
The first step in securing a commercial lease is to find a property that meets your business needs. Here are some key factors to keep in mind:
- Location: Is the property easily accessible to your customers, suppliers, and workforce? For example, a café might need to be in a busy area with lots of foot traffic, whereas a warehouse could be located in a less central industrial area where rent is more affordable.
- Size and Layout: Does the space provide sufficient square footage for your needs, and is the layout suitable for your operation? Think ahead—if your business grows, will this space still accommodate that growth? For instance, a call center could start off needing 300 square meters for 50 workstations but might need to double that within a year.
- Zoning Laws: Ensure the area permits the type of business you plan to run. Each city or barangay may have different zoning regulations, so check with your local government.
- Amenities: Consider if the property is equipped with what you need, like internet access, adequate power supply, water, and sufficient parking spaces.
- Budget: Calculate if you can afford the monthly rent along with other costs like CUSA. For example, a prime spot in Makati or Bonifacio Global City might cost around ₱1,500 per square meter per month, while a secondary street might offer space at ₱700 per square meter.
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You might consider hiring a real estate broker to locate the right commercial space for you. Typically, the landlords pay the broker’s fees, so you shouldn’t incur extra costs beyond your regular leasing expenses.
Negotiating the Lease Agreement
Once you’ve found the right location, the next step is to negotiate your lease agreement. Focus on these critical aspects:
- Lease Term: While a shorter lease offers flexibility, a longer lease often provides stability. For instance, if you are launching a restaurant, a five-year lease offers security, reducing the risk of relocating and losing your customer base.
- Rent: Assess if the rent is fair for both the location and the size of the space. Don’t hesitate to negotiate; for example, you might ask for reduced rent if you commit to a multi-year lease instead of just one year.
- Escalation Clause: This section of the lease describes how much and how frequently the rent can increase, with typical increments being 3-5% each year.
- Improvements and Repairs: Clarify who will handle repairs and improvements. Generally, the lessor takes care of major structural repairs, while the lessee is responsible for upkeep of interior fixtures.
- Security Deposit: It is typically around two to three months’ rent. Ensure the lease outlines when and how the deposit will be reimbursed.
- Permitted Use: The lease should specify what activities you are allowed to conduct within the property. Some landlords may have restrictions on the types of businesses that can operate in their spaces.
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Never hesitate to ask questions or seek clarification on any terms you do not understand. If needed, consider having a legal expert review the lease agreement before you sign it, as it is a critical legal document.
Understanding Your Lease Agreement
The lease agreement is essential for your business’s operations, so it’s crucial to understand its contents. Typically, it will include:
- Parties Involved: Names, addresses, and contact details for both you and the lessor.
- Property Details: A clear description of the space being leased, including floor and unit numbers, building name, and exact location.
- Term of Lease: The starting and ending dates of your lease.
- Rent and Payment: The agreed rent amount, payment methods, due dates, and any allowed grace periods.
- Security Deposit: The amount required, conditions for returning it, and permitted uses for the deposit.
- Use of Property: Details about specific business activities permitted in the rented space.
- Repairs and Maintenance: Responsibilities for ongoing maintenance and repairs.
- Subleasing: Any conditions regarding whether or not you can lease part of the space to another party.
- Default and Termination: Procedures for what happens if either party breaks the lease agreement.
- Insurance: The required insurance coverage needed for your business operations.
Review the entire lease closely to make sure you fully understand your obligations and rights before signing any documents.
Other Important Aspects to Consider
In addition to the lease agreement, there are several other factors you should consider:
- Business Permits and Licenses: Make sure you obtain all necessary permits and licenses required to legally operate from your commercial space. This may include engaging with local barangay services, city hall, and other authorities.
- Utilities: Confirm that essential utilities such as electricity, water, and internet are available and functioning. Usually, you are responsible for setting up these services.
- Insurance: Protect your business by obtaining the appropriate insurance to cover risks like fire or accidents.
- Compliance: Ensure that you adhere to the Philippine Building Code and other regulations that may affect your operations.
- Taxes: Be aware of your tax obligations related to your property and business. Typically, the lessor covers the land taxes, but this can be part of negotiations in the lease.
Call to Action
Leasing a commercial space is a key step for any budding business. By understanding the leasing process, closely reviewing lease agreements, and considering all your responsibilities, you set yourself up to find an ideal location for your operations. Be proactive in doing your research, and if you have questions, don’t hesitate to consult professionals before signing your lease contract. Taking these careful steps can lead you to a successful business that thrives in your chosen environment.
Frequently Asked Questions
What is the typical lease term for commercial properties in the Philippines?
Most lease terms for commercial properties typically range from one to five years; however, they can be longer, depending on the property and mutual agreement.
Can I sublet my leased space to someone else?
Subletting is generally not permitted unless explicitly allowed in the lease agreement, with prior approval from the lessor.
What is a “Letter of Intent” and when is it used?
A Letter of Intent (LOI) is a preliminary non-binding document expressing both parties’ interest in signing a lease agreement. It helps to clarify the intention to proceed but does not create legal obligations.
What should I look for in a “Permitted Use” clause?
The “Permitted Use” clause should clearly specify the types of activities or businesses allowed in your leased space. If it’s vague, it may limit your ability to fully operate your business.
Who typically pays for building insurance in a commercial lease?
Usually, the lessor covers the building insurance, but as a lessee, you will need to acquire your own business insurance to protect your operations.
What happens if I need to terminate my lease early?
Ending a lease early usually incurs penalties, depending on the lease agreement. This can include losing your security deposit or paying an early termination fee equivalent to one or two months’ rent.
What are Common Use Service Area Charges (CUSA)?
CUSA are fees for the upkeep of common areas in commercial buildings, like elevators and lobbies, and they often vary based on the size of your leased space and the services offered.
References
- Civil Code of the Philippines (Republic Act No. 386)
- The Philippine Building Code (Presidential Decree No. 1096)
- Local Government Code of the Philippines (Republic Act No. 7160)
