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Signing a business lease is just plain scary. Often you have to sign for multiple years and the monthly rent is normally higher than your personal house payment. As you grow, you don’t want to be hindered by the physical space you occupy. Here are a few questions you might ask before signing a commercial lease.
1.) Are you building for the future?
Businesses leases are often 5-10 year terms according Alex Cohen, Commercial Specialist at CORE. If you choose a space based on the number of employees you think you'll have a year from now, you could easily outgrow the space before the lease is up. Cohen advises business owners to opt for more space than less because they can probably rent any surplus space later on. But if you do plan to rent surplus space, be sure your lease agreement will allow you to do so.
2.) Does the space match your workforce?
Attracting quality talent isn’t an easy task for small businesses. You might not pay as much as other companies but if you’re appealing to the millennial workforce who appreciate their work environment as much as their salary, spending a little more to get office space in a trendy, up-and-coming area might be worth the cost.
3.) How much will furniture cost?
Cohen says that too many tenants consider furniture too late in the process. He advises that furniture delivery is often 4 to 6 weeks. “Even if a space build-out is complete, the absence of installed and wired furniture means a tenant cannot open for business.”
Second, during the buildout of the space, the furniture should drive some of planning, especially for wiring.
4.) Can you get a rent freeze?
Sacha Ferrandi, Founder and Principal at Source Capital Funding says, “The last thing you want is an expensive rent hike that forces you to move again.” If it’s not in the lease, try to negotiate a clause where if you sign before a certain date there will be no rent hike.
5.) What’s included in the lease?
Just like if you were renting a home, you want to know which utilities are paid for? Trash pickup, cleaning services, etc. If something isn’t included, ask how much the monthly cost has been in the past. Don’t be taken by surprise after you sign a multiyear lease.
6.) Who handles repairs?
When you lease a home or apartment, the landlord normally takes care of all repairs. With commercial space, that may fall completely on you. Make sure it’s spelled out in the lease.
7.) How many cars drive by and are they able to turn into the parking lot easily?
If you’re leasing a retail space, the landlord should give you an accurate count of how many cars drive by each day. It would be nice to know a count of pedestrians and cyclists too. Is it consistent during the day or during rush hour?
If they don’t have this information but you’re still interested, head to the area and do a count on your own or ask the city government if they have a count. You want to know the counts before signing the lease. Counting on your own is a tedious job but this is too big of a decision to simply hope for the best. While you're counting, notice how easy or difficult it is for automobiles to turn into the parking lot and how many actually do turn in. If the building or strip mall is on a busy main thoroughfare, traffic may deter potential customers from stopping by.
8.) Is there enough parking?
A building or strip mall can have just a few tenants and not have enough parking space for everyone at one time. If the strip mall or building has a relatively small parking lot and has one or more tenants such as a beauty salon, or dental group that serve multiple customers, or houses a tenant with a lot of employees, you and your customer may not always be able to find places to park. The best way to tell: Check out the parking lot on different days and different times of the day.
9.) Who owns the building?
If the business owner isn’t local, it may be more difficult to get issues related to the building resolved.
10.) Who were the most recent tenants?
Just like you would call references when hiring an employee, you should do the same when leasing a space. Think about it. If you hire the wrong employee, you can let them go at any time but if you lease the wrong space, you’re stuck with it for multiple years.
The landlord should give you the names of the last two tenants so you can call and ask them about their experiences.
11.) Do you understand the lease?
Business leases are complicated documents. Jack Levey, real estate attorney at Plunkett Cooney in Columbus, Ohio says, “Even terms that seem familiar may have a very different meaning in the lease than in everyday English.”
The lease you would sign was written to protect the landlord’s interest rather than yours. You should have your interests represented as well.
12.) Are all promises in the lease?
Did you negotiate a certain amount of parking spaces in the lot or use of break rooms that are outside of your leased space? Verbal promises are hard to enforce so make sure they’re in the lease before signing.
13.) Can you sell your business?
Strange question but Levey says that your landlord may have a say in that decision. “Most leases say that you need the landlord’s permission to assign the lease to someone else, or even to sublet the space. Many leases are even stricter, and require you to get the landlord’s consent to sell the equity in your business, or merge with another company.” He advises to work with an attorney on negotiating terms related to this especially if you think you may sell your business within the term of the lease.
14.) Can you get an "out" clause written into the lease?
An "out" clause spells out the terms by which you can get out of the lease if you do outgrow the space, or if for some unforseen reason your business can't continue to operate in the space. For instance, some landlords will agree to a clause that lets you terminate the lease without penalty provided you give them a certain amount of advance notice. (Usually at least three months.)
Business leases have a longer length and are more complicated than residential leases. Before signing, get help from a real estate attorney. Your realtor probably doesn’t have the knowledge to represent your interests in the contract negotiation other than the basics like price and length.
RELATED: How to Evaluate a Commercial Lease
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