If your business is new or simply in need of more space, the abundance of choice and favorable market conditions for potential tenants can prove an enticing prospect for small business owners. However, even in a buyer’s market, negotiating a commercial lease is a complex process that requires research and due diligence. If you think you have found the perfect location, here are some tips for leasing a space for your small business.
Setting the Term of your Lease
The term and rent that you will pay is your first negotiation point. The trick here is not to over-commit while giving yourself some flexibility for the long term. It’s generally recommended that small businesses negotiate one to two year leases with the option to renew should you need to. Remember to be prepared for pushback, a landlord is much more likely to favor locking you in for the long-term if they can by sweetening the deal. Make sure you have your budget in mind and stick to it.
What about Expenses?
You want to make sure you read over the lease as well as discuss with the landlord what additional expenses you will be responsible for. Some commercial leases will have the tenant responsible for maintenance, taxes, insurance, utilties, etc. Make sure you are clear on what and how much you are responsible for when factoring in your budgeted expense on the building lease.
Read the Lease
So it goes without saying, read over your lease in detail and hire an attorney who specializes in commercial real estate to go through the clauses and fine print.
Consider Clauses to Protect your Business
It’s worth investigating and negotiating some potential add-on clauses to your lease. Some to consider would include:
- Sublease – This builds in some flexibility so that should your business plans change you can sublet your space to another business. It also helps you with your budget should you have some unexpected expenses arise.
- Exclusivity – Prevents the landlord from leasing any other premises on the development to a direct competitor of yours.
- Co-tenancy – If the development has an anchor tenant such as a known retail brand and that tenant closes, a co-tenancy agreement can protect you from a potential loss of custom by allowing you to break the lease if the landlord doesn’t replace the anchor tenant in a specified time period.
What if You Default?
Businesses get closed down without prior notice all the time because they defaulted on their lease. Protect your interests and your customers by knowing what you are agreeing to upfront. Will you be locked out immediately? Will the landlord initiate eviction proceedings? Can you negotiate more time for yourself should you default? If you default could you pay only the month’s rent owed as opposed to the remaining money owed on the lease? It’s worth investigating.
There is an abundance of un-leased inventory out there. Although the tenant has more of the power with this abundance, one should not take the above points lightly or else they could get burned in the deal. Make sure you have a good real estate broker and attorney on your side. We can put you in contact with someone in your area. Give us a call today 770-856-1309 www.joshuawilsoncpa.com