Many times, finding the right space for your business is the easy part. Negotiating a commercial lease, on the other hand, can be quite difficult. Follow these basic guidelines to avoid signing the wrong lease.
1. Consider the Length of the Lease
Keeping you in your space for a longer period of time is something landlords encourage because it’s advantageous for them. There are some instances where a longer term lease is a smart business decision for your company – you may be able to save big on your monthly rent. On the other hand, signing a lease that’s too long can present problems and cost you money. If your business and space requirements change and you need to move, you could find yourself trapped in your lease agreement with few options. Before you start negotiations, be sure to review your current business situation to understand what your future requirements will be.
2. Understand the Market and Do Your Homework
Get to know your market before you sign any lease. Knowing the market is essential in order to structure a favorable transaction. You should have a clear picture of what other companies are paying for spaces similar to the ones you are considering and what kinds of terms and concessions they’ve received. Also, dig into the reputation and history of the landlord and make sure you know who your neighbors will be in any building.
3. Evaluate All of the Costs
In addition to the monthly rent your lease agreement outlines, it’s crucial to know which expenses you’re responsible for.
Find out who’s responsible for system maintenance and repairs. If you’re paying those costs, ask for information about the age and condition of the systems so you can calculate your out of pocket expenses. How are utilities calculated and what percentage of those will you be paying? Will you have to pay any special taxes or fees to occupy space at that location?
4. Pay Careful Attention to the End of the Lease
If you have an option to renew, understand the process and time frame required to exercise this renewal. You may be required to notify your landlord if you are staying or moving. The lease will state a date on which you need to act. If the rent during the renewal period is not a fixed amount, make sure you know how it’s to be calculated or negotiated.
Finally, pay attention to the surrender clause. This clause stipulates exactly what is required of the tenant if they decide to vacate the space when the lease expires.
5. Call in a Commercial Real Estate Pro
We’ve listed some of the important things to look for in a commercial lease but there are many more issues to consider.
A commercial real estate advisor focused exclusively on tenant representation should be thought of as a must-have. A knowledgeable pro can help you discover space you otherwise would never know existed and give you an edge at the negotiating table. Even better, landlords pay commission for both sides of the transaction so there is no out-of-pocket expense to you. In addition, the commission is structured based on the assumption that there will be two brokers sharing the fee. In other words, the fee for tenant representation is already built into the cost of the space you’re looking to lease. Since you’ve essentially already paid for it, there is no reason to not get the benefit of a CRE professional negotiating on your behalf.
Consider engaging howardcommercial, a commercial real estate firm providing conflict-free advisory services to tenants, owner-occupiers and investors. Our fiduciary responsibility is to our clients and we represent them vigorously to produce superior results.
Give us a call at (314) 821-0085 or send us an email at doug@howardcommercial.net
