What Are the Requirements for Commercial Property in Oregon?
Have you noticed the past 10 years of commercial real estate growth in Portland? Demand for office space has peaked from the multiple industries fueling our region’s growth. 85 million square feet of new development has been added over the past decade. Even with that much growth, competition is fierce for tenants. Any company searching for new space needs to be ready to move fast and secure a lease. Robert Hakes Construction wants to provide an introduction of the common legal elements of commercial leases in Oregon.
Lease Types
Legally, there is no distinction between the different types of commercial leases commonly used in Oregon. The most typical commercial lease structures are Gross Lease, Modified Gross Lease, and Triple Net Lease. Here is some information about what each lease type involves.
Lease Terms
In Oregon, there are no statutes or regulations that dictate commercial lease terms. A typical short-term lease will range from 3 to 15 years and will often include an option to renew. Long-term leases that extend into decades and place more responsibilities on the tenant.
Oregon’s new rent control law doesn’t extend to commercial leases. Check the fine print for details and lease defaults. Rent changes are usually set into the lease based on a fixed percentage. A specific consumer price index and will be frequently renegotiated during a lease extension.
What’s in Your Business Lease?
Your commercial lease is one of the most important contracts you will enter as a business owner. What you can do with your space and the rules for using your space all play an important role. All factors contribute to the experience you provide your clients, customers, and business partners.
Any promises made to you by the building owner need to be properly incorporated into your commercial lease. Make sure you understand the fine print. Your lease agreement represents the largest business transaction you will enter during your first few years in business.
New tenants and landlords should come to an agreement on:
-use of common areas
-parking
-signage
-maintenance and repairs on mechanical equipment (elevators, HVACs, security equipment, etc.)
-rights to enter the premises
-terms of a default
-options to renew or purchase
Ongoing Expenses
One of the top benefits of a well-drafted lease is that it clearly spells out tenant and landlord responsibilities for ongoing expenses. A business new to leasing needs to spend additional time reviewing its lease terms. Spending time reviewing the details ensures there are no surprises when the monthly bills start arriving.
Regular tenant expenses commonly include rent, maintenance, repair, personal property and liability insurance. Property tax responsibility is detailed in the lease as well. Tenants should be aware that fixed improvements made to the premises become the property of the landlord after a lease end. To avoid this, add clauses about fixed improvements into your lease prior to signing.
Key Points
One of the most important things to know at the beginning of a lease is how it will end. The lease will state the rights of both parties to end a lease agreement by expiration, termination with advance notice from either party, or eviction.
Early termination is not regulated by Oregon law and is often settled by both parties through negotiation. A holdover tenant is when a tenant stays on the premises without prior agreement by the landlord after a lease expires. A holdover tenant in Oregon will be charged a significantly increased rent rate and is subject to eviction. It’s not uncommon for a lease to state that if a landlord accepts payment of holdover rent, the lease will convert into a month-to-month periodic tenancy lease.
An Oregon landlord who seeks to forcibly evict a tenant must follow an expedited court procedure called forcible entry and detainer (FED), which determines only if the tenant has the continued right to possession of the premises and doesn’t consider other claims such as damages. An uncontested FED judgment can be obtained in 10-15 days, while a contested case may take 30-45 days. Local county sheriffs are tasked to execute evictions.
Other Considerations
Tenants and landlords like to use form leases for convenience. The reality is that there are many variables to consider for a lease to be a productive document for both parties. A landlord is allowed to include use restrictions in a lease, so special care should be made when drafting a lease to ensure a business can operate within its rights. Commercial businesses with a residential component, such as hotels, nursing homes, or vacation rentals, may be subject to additional local use regulations, but are largely exempt from the Oregon Residential Landlord Tenant Act.
Rent is one of the largest expenses for a business. Signing a lease without a clear understanding of the terms is a way for both tenants and landlords to get into tough situations. Three issues seem to recur often:
- Subleasing the space. If this is prohibited or landlord consent is required, unanticipated changes to the tenant’s business plan may be harder to implement.
- Landlord improvements. This can be particularly important for tenants like retail that rely on walk-in traffic. Ugly scaffolding or construction zones make the premises less inviting, so be sure the lease spells out rules to minimize the impact of construction on the tenant.
- Rent increase. Do not leave this open to negotiation make sure to include exact increase in your lease.
If leasing is not your regular business then you should have a realtor, attorney, or commercial lease consultant go over the lease terms, and you should ask as many questions as you can.
Tips for New Business Owners Signing their First Lease
1. Build-Out Costs. You want to have your contractor and architect lined up as early as possible. Ideally, they can look at your top location choices with you. This will help you line up financing or decide what amount you should ask for in a Tenant’s Improvement Allowance.
2. NNN & CAMs. Ask for an estimation of the Triple Net and Common Area Maintenance Fees before you agree to them. They are often estimated and reconciled on an annual basis so be aware that those fees could change during the term of the lease.
3. Personal Financial Statements. Landlords may want to see a personal financial statement so prepare in advance. Holding six months of rent payments in cash will help you secure the location.
4. Financing. Begin working with lenders for your lease, or any other business expenses such as equipment, as soon as possible. Preparing your financials will give you a better picture of the strength of your business.
5. Timing. The site selection process can take up to 6 months. Plan accordingly.
6. Term Length. Most commercial leases are for a 3- to 5-year term. Landlords may trade a few months of free rent or agree to pay for more of the tenant improvements in exchange for longer terms.
In Conclusion
Requirements for Commercial Property in Oregon can be tricky. Robert Hakes Construction has 27 years of experience with conducting job sites in Oregon. Our team can help answer questions and help guide you through improvements on you leased space. Contact our team now to schedule you free design consultation at info@roberthakescons.com.