Learn me about commercial space rentals...

Brando · Brando's Garage

Primarily, commercial/industrial space.

A few friends and I are looking to get shop space. Store tools, a vehicle or two, and have a place to work.

What should I look out for? What should I ask? It would be a lease for at least a year, in my name, and each 'friend' would sub-lease from me, pay a deposit (3x months), and have to be trusted with access. No more than 3-4 of us total.

What questions should I be asking? What should I look out for? What type of insurance is needed? If we could, we'd like a lift, too.

Thanks!

dad911 · 10-01-2014, 04:13 AM

I would never sign personally. Someone gets hurt, and you get sued. Doesn't matter how good your friends are, the injured's insurance company will go after you. Perhaps form an LLC, put them all on the hook.

cashflyer · 10-01-2014, 04:14 AM

I don't know jack about Cali laws. The following is based on my experience in SC.

Get everything in writing. Both the lease, and the sublease to your friends. You need to agree with your friends what their level of liability and responsibility is.

The property owner should tell you what level of insurance he requires, and also whether or not you will be required to pay any taxes above and beyond your lease payments. If he says he does not require insurance, then go talk to an insurance specialist. You do not want to be on the hook for his building if you have an acetylene torch + greasy rag incident.

Find out who is responsible for maintenance, right down to light bulbs.

Find out if any fire protection is required when storing cars, gas, and chemicals.

Some spaces are for storage only. Make sure you are allowed to be working in the space.

You may also need to check on noise rules if you are planning to rev any uncorked engines, or be hammering on steel into the small hours.

craigster59 · craigster59's Garage

First, the LLC advice is spot on. You want to distribute the liability equally and avoid exposing yourself personally. Second, you're in California. It ain't easy. When you lease commercial space it opens a whole can of worms. Smaller spaces are not usually "triple net" where you are responsible for all taxes, repairs, upgrades, etc. But you will have to have an ADA compliant restroom, fire extinguishers, any paints and solvents stored in a flammable cabinet, etc.

The costs really start to add up and you will be paying for permits and fees you never thought existed. Random fire inspections, AQMD, OSHA, it all comes into play. I'm sure others can provide more details, but you are wise to start doing your homework now. It's going to be a real eye opener.

McLovin · 10-01-2014, 06:57 AM

I've done what you're doing (except by myself, no partners).

Here's some issues, in rough order of importance:

1. The LLC isn't a bad idea when you have multiple people, for a variety of reasons. When you sign a lease, someone will have to be on the hook, as an INDIVIDUAL. If you sign the lease in your name, you're on the hook. If you sign as an LLC, you'd have to sign a personal guarantee. If you have 4 members of the LLC, you can make all the others sign PG's, too. That way, they have as much skin in the game as you.

2. Be sure you understand what you are signing. The length of the lease, the total cost, what you are and are not allowed to do in the space. Almost all of these types of commercial space leases are very pro-landlord and have "gotchas" that the tenant didn't realize when they signed.

3. Some other good things to consider have been posted above. The one thing I disagree with is the "hidden costs," permits and fees, AQMD, etc. For what you are doing, I don't see any of those costs. I don't see any permit you'd need, any other fees, etc. I didn't pay any in the years I had the warehouse. I suppose it's possible that you have some "surprise" random inspection from some agency, but IMO that's 99.9% unlikely to ever happen. You are not running a business, won't have a business license, won't be registering anything with the city or state, and won't be on anyone's radar.

(PS, the only downside of the LLC is you'd have to pay an $800 yearly fee to the state for the LLC. And the hassle of setting it up and maintaining it.)

john70t · 10-01-2014, 07:58 AM

Members or guests getting injured, property getting stolen or damaged, lift breaking, building or floor damaged when your not around, unforeseen flaws in building like bad electrical or roof or plumbing, members losing keys, members not paying rent, members bringing in extra vehicles, members on drugs acting like idiots, etc.
There is a lot to go wrong.

I rented in a space in cali like that and all of the above happened.
It was a miracle the place didn't get shut down.
At first it was a super relaxed atmosphere and a nice place to spend evenings with friends, but the riff raff happened.

Brando · Brando's Garage

Holy crap. All this just to have a space to work on our cars?

LLC, here I come. Going that route, what type of insurance would I need to carry? Almost all of the spaces are gross leases and the property management wants liability to 100k at a minimum.

Spot on with the sub-lease terms: I want that to be clear as day. We don't want anything more than overnight storage, some ground-rules, safety equipment, etc. Keeping cars long-term (more than 24-48 hrs) would have to be approved by myself + 1 other. Securing the property is a requirement too

Since we're not running a business, we wouldn't have to register a biz. license, get a BAR license, permits, etc - right?

McLovin · 10-01-2014, 09:50 AM

You won't need any licensing or permitting of any kind.

You'll need the minimum insurance that the landlord requires, or whatever level above that which would make you feel comfortable (if any).

I assume you are renting warehouse space in a "warehouse mall" type area (like an apartment complex of small warehouses). They are usually very professionally managed. They are a little "crafty" with their leases, but for the most part run their properties well. Just be sure you know what you are signing.

When I did it, it was a piece of cake, and mine was even more complicated because I had mine combined with a retail auto sales license (there were a lot of tax and other advantages for me with that, I was really into "heavy hobby" collecting, buying, selling at the time). But it was still no biggie.

Yours is more complicated because you have other people involved. That's where your biggest issues/headaches will lie. Not with the landlord, the city, etc.

McLovin · 10-01-2014, 09:53 AM

If you form an LLC, you can have each participant be a member of the LLC. They you don't have to do subleases with them. You are all equally liable.

Or you could be the sole member of the LLC, and do subleases.

Not sure what would be more advantageous to you. Probably the former.

porsche4life · porsche4life's Garage

You might shop around a few local commercial realtors. See if you can get one to help you find the space and help you navigate the legal papers of the lease. You shouldn't have to pay them, the landlord will pay. But its good to have someone working for you, not for the other guys.

McLovin · 10-01-2014, 10:12 AM

Oh, one last important thing:

Sign up for as short of a lease term as possible. They probably won't do less than a year, which would be ok. But definitely don't sign anything longer than a year. Because remember that you are on the hook for all the charges for the entire lease term, whether you decide to vacate or not.

So, if it is $1500/month on a 12 month lease, the minute you sign that lease, you owe and will have to pay them $18,000, no matter what happens.

Seahawk · 10-01-2014, 12:22 PM

Quote:

Originally Posted by porsche4life

You might shop around a few local commercial realtors. See if you can get one to help you find the space and help you navigate the legal papers of the lease. You shouldn't have to pay them, the landlord will pay. But its good to have someone working for you, not for the other guys.

Lots of good advice here.

I was asked to take over, as COB and Pres., a company in peril. For the past two years I have been dealing with leases of commercial spaces, trade debt, equipment sales, liquidation, auctions, etc., to keep the company alive, which I have done.

All the mistakes the former management made have been discussed in this thread: They failed at the common sense metric.

The key is terms and length of lease. By terms I mean most commercial lease sites are mini-HOA's, with maintenance fees, insurance requirements, hours of operations, specified garbage removal company, ad f'ing infinity.

I am in Maryland so the rules of the road may be different.

Get a lawyer to review all the lease documents. Trust me, you are not qualified.

The reason I quoted PFL is that many commercial site are available for sublease because the company failed and they are looking to get out of the lease.

Call a commercial real estate broker in your area. They'll know. Then call a lawyer. It is worth the two hours of his or her fee.

Brando · Brando's Garage

Thanks Seahawk. I'm a total novice when it comes to this part of business operations. Might you know of a Real-Estate lawyer or service that can review these things?

Looking up LLC costs and procedure right now...

Quote:

Originally Posted by Seahawk

Lots of good advice here.

I was asked to take over, as COB and Pres., a company in peril. For the past two years I have been dealing with leases of commercial spaces, trade debt, equipment sales, liquidation, auctions, etc., to keep the company alive, which I have done.

All the mistakes the former management made have been discussed in this thread: They failed at the common sense metric.

The key is terms and length of lease. By terms I mean most commercial lease sites are mini-HOA's, with maintenance fees, insurance requirements, hours of operations, specified garbage removal company, ad f'ing infinity.

I am in Maryland so the rules of the road may be different.

Get a lawyer to review all the lease documents. Trust me, you are not qualified.

The reason I quoted PFL is that many commercial site are available for sublease because the company failed and they are looking to get out of the lease.

Call a commercial real estate broker in your area. They'll know. Then call a lawyer. It is worth the two hours of his or her fee.

porsche4life · porsche4life's Garage

Brandon, chances are a good commercial RE broker will be able to get you in with a good lawyer too. And there are a few commercial RE agents floating around out there who are lawyers too.

Seahawk · 10-01-2014, 02:03 PM

Quote:

Originally Posted by porsche4life

Brandon, chances are a good commercial RE broker will be able to get you in with a good lawyer too. And there are a few commercial RE agents floating around out there who are lawyers too.

Yep.

Make sure your potential RE broker doesn't recommend the lawyer

Brandon, you have gotten great advice here, not a false step from any post.

The problem with every union is that the principles love the idea of being partners right up until it costs them more money beyond what they told their wife...or trouble.

Trouble, monetary, separates friendships faster than a blond with nice Hogans...

Dantilla · 10-01-2014, 05:02 PM

I have a warehouse, and rent it out.

My rental agreement is in plain English, no legalese. Very simple to understand.

Most of the spaces are month-to-month. I don't like long leases, because I'm not waiting to the end of a long lease to get rid of a screwball. The only company on a longer lease is a very well-run organization, who is interested in eventually buying the property. Everybody else has been there for multiple years, month-to month since day one.

Right now, there are no car related businesses there. A big requirement for cars is a deposit large enough to pay for a Phase 1 environmental study. If any car related business leaves a mess, we would go after them hard for any clean-up or environmental damage. This is made clear up front, so the tenant knows if they leave the place squeaky-clean, they get the deposit back.

We require 1,000,000 liability, with the property named as Additionally Insured. This is no hurdle for a legit business, but for a few car buffs to tinker, 1,000,000 may not be possible. We would make something work.

My building is perfect for a hobby shop. While it is commercial property on a busy five-lane road, it is not prime retail space. Just an old warehouse, quite a ways back from the road behind a chain-link fence. Doesn't draw attention to itself. If there were a bunch of Porsches inside, no one would know (I used to have a handful of Porsches there. Mostly parts cars).

For your use, I would insist that I have ONE contact person. That person is responsible for ALL rent. I would expect one check for the full rent every month. I would not put up with four guys each paying 1/4. Three people saying "I paid MY share!" is the quickest way to get an eviction notice.

Even if an LLC is formed, somebody is going to sign the dotted line. No way around that.

KFC911 · 10-02-2014, 03:01 AM

Quote:

Originally Posted by Dantilla

I have a warehouse, and rent it out.

My rental agreement is in plain English, no legalese. Very simple to understand.

Most of the spaces are month-to-month. I don't like long leases, because I'm not waiting to the end of a long lease to get rid of a screwball. .....

Even if an LLC is formed, somebody is going to sign the dotted line. No way around that.

LOTS of great advice in this thread imo. I think I'd tend to lean towards the strategy above. I've had an LLC (for properties) and decided several years ago to migrate towards a umbrella coverage (in addition to sufficient liability, etc.). Me....I'd probably be the sole owner (with say a 5M umbrella...probably less than the annual LLC fees and hassle for a non-business entity) and lease (month-to-month for sure) to the others..."control"...I want as much as possible and in doing so...KISS

. Good luck!!!

Dantilla · 10-02-2014, 06:02 AM

Quote:

Originally Posted by KC911

I'd probably be the sole owner ... and lease ... to the others.

Good way to go. Non-payment would be easy-

"I paid rent on the first, and still do not have your share. If your portion of the rent is not received by the 10th, your car will be moved outside."