If your business is seeking to expand or needs an additional location, you will be exploring various commercial properties in your area. Depending on what type of service you offer, you may be looking at property with prime highway access or perhaps back office property that is off the beaten path. Regardless of your needs, there are some things to keep in mind when leasing commercial property. We’ll discuss just how to find the right property for your needs.
1. Make an assessment. You know that your present facility is too small and you need new property. Or, you are ready to open an additional location. In either case, you must determine what your current and future needs will be.
Assess your current needs and project where your business will be in about five years. Even if you are signing a two- or three-year commercial lease, you may want to renew it again for several years. Find property that offers room for growth including adjoining property that might become available for future expansion.
2. Know your commercial market. Across much of the country, there are currently more commercial properties available than there are tenants to fill them. Likely, you’ll find that it is a leasee’s market, but be aware that prime properties may still be in short supply.
Your local Chamber of Commerce can shed some light on commercial property availability. A knowledgeable commercial real estate broker can also clue you in, and work to find you a place for the best possible lease deal.
3. Who pays what. Commercial leases are different from residential leases as tenant responsibilities are simply just different. With residential leases, the landlord is responsible for maintenance and upkeep. With commercial leases, the tenant may assume many of those responsibilities.
Commercial tenants should understand what the landlord is requiring of them and negotiate accordingly. You can negotiate to have the landlord handle certain matters such as building and grounds upkeep, while assuming responsibility for the electrical system, the plumbing and interior upkeep. Your lease should spell out these responsibilities and include a dollar limit for repairs, otherwise you may soon find your lease bargain is a money pit.
4. Take a look at expenses. Besides maintenance and repairs, what other expenses will you be shouldered with? For instance, if you are a tenant in a mall, there will be certain common area maintenance costs that all tenants will share. These can include lighting, heating and cooling, bathroom upkeep, advertising, grounds maintenance and more.
If you are expected to shoulder a portion of the property upkeep, will these costs be metered or based on your square footage of the property? Familiarize yourself with all possible fees and clauses that might slap you with a sudden and unexpected charge.
5. Protect yourself. You will need to hire an attorney that is familiar with commercial real estate to review your lease. She may want to build in some clauses to ensure that your rights as a tenant are protected.
A knowledgeable attorney will ask that you have the right to sublease your property. This is important if your business plans change and the property is no longer needed. Co-tenancy is another option, one that protects you in the event a major anchor tenant leaves. This clause is important for mall retailers because if a major tenant leaves, then traffic will drop if the tenant is not replaced. Also, your landlord should insist on an exclusivity clause, whereby a direct competitor is not allowed to set up shop nearby.
6. If your business flounders. Economic variables make it less certain that any business will survive for the long term. If your business runs into trouble and you fall behind on your rent, will your landlord padlock the doors? Your attorney should anticipate every possible scenario and work to protect you, by building in some space between when an eviction notice is served and your business is shut down.
Although a commercial lease can offer more flexibility to tenants than a residential lease, much of the benefits of commercial leasing are won through negotiation. Do not expect your landlord to agree to whatever you want, but do know that you can look elsewhere to find a better deal.
SBA: 6 Tips for Negotiating a Commercial Property Lease without Getting Burned — http://www.sba.gov/community/blogs/community-blogs/business-law-advisor/6-tips-negotiating-commercial-property-lease-wi
Steve Shanahan is the Executive Managing Director at Real Capital Markets, a company that provides cost-effective solutions for Commercial Real Estate Sales, bank REO, non-performing/performing note sales and more.