Finding the right warehouse to lease for a business can be complicated and competitive in Arizona. It is a more intensive process when compared toother commercial real estate industries and your business will typically have to utilize the services of a team of real estate professionals to get it done properly and avoid unnecessary risks down the road.
Before starting your search for the best new facility for your business, you need to know a few essential points about Arizona warehouse industrial leasing and contracts.
A Detailed and Updated Business Plan is Essential
There are many things that need to be planned out in detail before you should start your search for a new warehouse. First and foremost, list all your immediate needs in a facility. This list should include your expected operations, minimum functional space required, total space desired, facility dock doors needed and general access requirements.
Your company will need to put together a list of any equipment that would need to be moved into and set up for operations. This will help shed some light on practical details like how large those dock doors must be and what kind of electrical capacity is needed to run all the equipment.
The second priority is detailing any potential expansion plans that might be required beyond the space initially required. Would more customers or a new product line require additional space? Expansion rights should be secured in your initial lease agreement even if the expansion requires everything to go as planned for a long time.
Your company might be tempted to take the first available space you can afford when warehouse space is highly sought after, but some simple planning on expansion before signing a new warehouse lease will make expansion a lot easier in the future. It is also important to make sure that any potential uses of the building, even if they are simply ideas for ways to grow your business, should be included in your initial lease agreement.
What to Expect on Lease Terms, Due Diligence and Budgeting
Most commercial leases in Arizona are net leases, which means the tenant has to pay the lease amount to the landlord and pay for taxes, insurance, utilities and maintenance associated with using the building. Your company should also expect that most warehouses available to lease will require longer terms of 3 to 5 years or more.
The initial build out of a facility for a warehouse tenant is expensive and most warehouse landlords do not have to consider anything shorter term in Arizona currently as Phoenix is one the top 20 markets for net leases in the country.
The process of determining who covers the cost of the initial build out is certainly part of the normal contract negotiation process for a warehouse lease. However, those companies looking for prime real estate in markets like Phoenix should understand they might have to cover more of those costs themselves if there are competing offers on a building. This also ties into why due diligence on a lease is so important.
It is essential to get documentation on every expense associated with operating in the facility. This includes past utility bills for at least the past year or more and any routine maintenance required on the building.
Most warehouse landlords looking for net leases will have all this documentation prepared, but it will be vital for your company to understand accurate expected costs above and beyond the lease payment. Detailing this information will allow your company to understand how much flexibility you have on the contract terms.
Know Arizona Standards for Breach of Contract
Another key negotiating term in a warehouse lease involves determining and negotiating what constitutes a breach of the lease. Any potential breach of a lease agreement is broken into serious and non-serious breaches to help determine the appropriate response. Any breach that falls into the non-serious category typically works under the expectation the tenant will work to resolve the issue as quickly as possible and establish practices to make it less likely to happen again. Contract termination and eviction are reserved for those breaches that fall into the serious category.
It will be important for your company to understand what generally constitutes a serious breach of the lease agreement for a warehouse lease in Arizona and establish your internal processes to avoid those issues whenever possible. Our firm helps clients establish best practices to avoid serious breaches wherever possible and establish appropriate insurance coverage where risk still exists.
Reaching an Agreement That Works for Your Company
Before executing the agreement on a new Arizona warehouse lease, there should be a final review of all these key details with the decision makers from your company and your commercial real estate team.
A key decision with such an important long-term impact on your company should come with feedback from the experts you have hired to represent your company. Review the costs, benefits, risks, and marketplace options to make sure the lease agreement makes sense for your company.
Here are a few high-level things your company should consider before moving forward with any lease agreement:
- Review building blueprints
- Detail any previous construction or maintenance on the facility
- Detail and summarize all building expenses and costs
- Review tax documents, insurance policies, and title of the property
- Review any other property or building-related litigation or liens
Many of these concerns will be addressed at the appropriate time if you have made the right choice to work with an experienced team of professionals in Arizona commercial real estate. This includes a commercial real estate agent, commercial real estate attorney, certified inspector with experience in industrial warehouses, an industrial engineer and general contractors with relevant experience.
While your company might employ people with some of these skills or expertise, getting outside counsel and review is essential to this process. It can be common for the excitement of new growth and opportunity to drown out concerns, issues and costs that must be considered before committing to the facility.
A Law Firm that Specializes in Arizona Commercial Leases
M&G Law represents companies looking to expand their real estate footprint in Arizona routinely and our attorneys can assist with every aspect of planning, reviewing, and securing the right Arizona commercial lease agreement for your current and future needs. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.