If you own a new or expanding business, leasing an office space offers the ability to secure an excellent location that’s appealing to both your customers and employees. You can accommodate your growing team, expand your outreach, and flourish in your chosen industry.
Do you think it’s time to move your operation to a new location? If so, check out these 15 tips for leasing commercial property.
1. Think About Your Vision
Before you start leasing an office for your business, envision what you want your company to look like one, five, and 10 years from now. Do you want to tackle a widespread problem and offer stellar customer service? Do you desire to grow your team and expand your service offerings? Do you seek to provide a unique product that’s nowhere else on the market?
It will be next to impossible to find the right property if you don’t know what purpose you want your business to have. In fact, the number one reason small businesses fail is that they don’t adequately serve a market need. Once you have a vision in mind, you can take the next step.
2. Research the Area
You know you want to lease an office, but do you know where? Research the neighborhoods in your area and see what they have to offer. Are they primarily residential, commercial, or a mixture? What are the crime rates? Consider nearby businesses and what markets they cater to. Will your employees be able to get lunch without traveling? Are there public transit and parking options?
You should also look up the local laws and ordinances in each area. Zoning requirements, for instance, will dictate:
- The health and safety regulations you must follow.
- The types of signage you can put up.
- The amount of lighting you can use.
- The square footage of space you must allow for walking.
- The kind of parking you can offer.
Look up nuisance laws, too. Many municipalities have rules surrounding noise, odors, unruly landscaping, and anything else that could interfere with peoples’ health, safety, and comfort.
3. Look up the Building Owner
If you’ve found a property you’re interested in, do some research on it and its owner. What can you find out about them online? Does the building owner use a property management company or handle everything themselves? Do they have a reputation as a respected businessperson in the community? Are there reviews from people who’ve felt they’ve been scammed or misled?
Keep in mind that you’ll deal with this person for as long as you stay in the building. If it’s someone you typically wouldn’t want to work with, it’s best to walk away and find another option.
4. Define Your Expectations
What do you hope to get out of this property? Do you envision this space as one where you want to stay and develop? Perhaps it’s merely a stepping stone to your next growth opportunity. Knowing what you want will help you determine the ideal length of occupancy.
If you have a smaller operation, the future of your business may be a bit unclear. Next year may look good, but what about the one after that? What if you don’t have the capital to continue renting after a few years? For growing companies, a short-term lease is often safer and more flexible. Plus, you’ll likely have the option to extend the contract at the end of your term.
5. Consider Your Space Needs
How much space do you need to run your business successfully? To determine this, you’ll need to think about your equipment, number of employees and customers. Plus, keep in mind that the entire rentable square footage may not all be usable. Closets, lobbies, stairways and elevators can all eat away at the available area.
If you’re not entirely sure how much space to invest in, you can hire an architect. They will measure the property you plan to lease and tell you if it will work with your needs. Once you have this information, you can use it to compare one building with another.
6. Devise a Budget
Perhaps one of the most important things to think about before leasing an office is your budget. How much can you reasonably afford, and can you cut any expenses?
Items of consideration should include:
- Rent — How much will you pay each month, and are rent increases written into the lease?
- Insurance — Will you need the policy to protect the building and the contents inside?
- Security — Does the building offer security measures, and do you have to contribute financially toward them?
- Operating expenses — Do you or the building owner cover costs like gas, water, electricity, and heat?
- Taxes — Does the building owner pay the property taxes, or are they split among tenants?
- Alterations and modifications —If you want to make updates to accommodate your business operations, are you responsible for the cost?
- Maintenance and repairs — Who takes care of building upkeep, and what happens when something breaks or needs replacement?
Keep in mind that the building itself can also factor into your costs. Building class, broken down into A, B, and C, dictates the age, size, and quality of the property. Class B buildings offer lovely spaces that are around 30% cheaper than A-grade buildings.
7. Read About Lease Types
There are three types of leases you’ll likely encounter. It’s smart to understand all of them, as they’ll impact your budget and, ultimately, your decision to sign.
The most straightforward commercial lease is a gross or full-service one. With this agreement, the property owner pays all operational expenses, including insurance, utilities, and maintenance. However, there’s often a cap on these expenses, and you may have to pay anything exceeding it.
With a net lease, the tenant and landlord share expenses. You might come across something called a triple net lease, marked NNN, which will require you to pay rent, taxes, insurance, and common-area maintenance. A modified gross lease, the third type, is a hybrid of the two examples above.
8. Understand Lease Statutes
When you read potential leases, you might see some terms you’re not familiar with.
Lease statues you should know about include:
- Transfer structure —This statute dictates what you can do if you want to leave the space or your business closes. The property owner may agree to assign the lease to a new tenant or allow you to find a subletter.
- Personal exposure — You may be required to sign a personal guarantee that means you’re on the hook for certain aspects of the lease, even if your business defaults.
- Holdover rent — This statue determines the rent increase if you stay in the building after the lease has expired. In some cases, it could be 250% of your regular rent payments.
- Nondisturbance agreement — This agreement allows you to stay in the building if the owner fails to pay his mortgage and the property changes hands.
Keep in mind that these examples can vary based on your state and local municipality. Make sure your lease is clear and that you understand the terms in their entirety.
9. Bring in Some Investors
As a new or growing business, no matter how well you budget, you’ll likely need more funds to support your success. While you may look to a business loan as a solution, a better option is to acquire funding from a crowdfunding platform or angel investors.
Crowdfunding has become extremely popular in recent years, allowing you to showcase your product or service and raise money from future customers. Angel investors and venture capitalists are other options, allowing you to gain funding in exchange for shares in the company or royalty agreements.
10. Ask Lots of Questions
You won’t be able to gather all the information you need through research alone. Instead, you’ll need to talk to the building owner or property manager.
Questions to ask when leasing an office space include:
- Will you need to pay rent monthly, quarterly, or annually?
- What’s the noise level typically like around the building?
- What amenities — like kitchens and conference rooms — are available?
- Can you get a noncompete clause to prevent similar businesses from becoming tenants?
- Will the landlord pay for fit-up changes — such as paint, new carpet, or a different layout?
- What happens if changes to the building restrict access to or visibility of your space?
- Can you move to a larger area in the same building if it becomes available?
11. Think About Dispute Resolution
Ensure you read the lease to determine how you will resolve any future disputes. Many contracts require arbitration, where the tenant and landlord use a professional mediator. Most courts will uphold arbitration agreements, as many mediators are retired judges.
There may be a clause that with any dispute involving operating costs, utilities, or real estate taxes, the tenant can take the landlord to court but must pay the fees. In this case, the landlord has no incentive to settle, and costly litigation may leave you without an answer for years.
12. Try Out Negotiation Tactics
The next step is to develop your commercial lease negotiation checklist. You don’t have to agree to all the terms in the lease, including the rent prices. Nothing is set in stone, and you can work with potential landlords — and an attorney — to make sure you get the best deal for your business.
Ask what inducements the landlord can provide in exchange for a lease agreement. If space has sat vacant for an extended time, they may offer a few months rent-free or pay for part of your renovations. To put your business at an advantage, negotiate for more than one location at a time, giving you the option to walk away from one for a better deal.
13. Consider Using a Broker
A real estate agent or broker will understand your area’s property market, know other professionals, and expertly navigate negotiations. When looking to sign your first commercial lease, having a professional by your side can be invaluable.
Before you hire a broker or agent, ask questions like:
- What’s their strategy to find a suitable property?
- What market research resources do they have available?
- How many other clients do they work with at one time?
- Do they have a specialization in your area or with a specific type of commercial space?
- Do they have experience working with small businesses or your industry?
If you’re unsure where to find a suitable broker or agent, start by reading reviews online. You can also ask for recommendations from other trusted business owners.
14. Make Preparatory Checklists
Before you sign that lease, create a checklist for renting an office space. This document will keep all necessary tasks top-of-mind as you transition into a new building.
Items on your checklist should include:
- Purchasing moving boxes and packing supplies.
- Hiring a moving company for your belongings and equipment.
- Notifying all vendors and clients of your change of address.
- Setting up all necessary utilities at your new location.
- Printing up new business cards and marketing materials.
- Forwarding mail to your new address via the post office
- Documenting moving-related roles and responsibilities for employees.
15. Read the Lease Again
You may have read over the lease when researching properties. However, some time may have passed between then and your decision to sign. Before you commit, be sure to read the contract in full one more time. Do all the clauses and terms match your expectations? Are there any errors or typos? Have you looked over and negotiated the common area maintenance terms?
If you notice something wrong, mark it and send it back to the building owner. If everything looks good, it’s time to sign. Be sure to make a copy of the lease once you and the landlord sign it, and keep it in a secure spot. It doesn’t hurt to scan the document and store it in the cloud, too.
Planning to Move Into a Commercial Building? Follow These Guidelines
Moving your new or growing business into commercial property is a big step and not one you want to take hastily. Instead, research your options and tour multiple locations. Don’t be afraid to ask questions, and use the power of negotiation to get the best deal.
Ensure your lease agreement incorporates everything you and the landlord discussed, as nothing should be closed verbally. Once you’re ready, sign that document to say hello to your company’s new location and its future.