There are countless items that business owners should consider before signing a lease and starting a business, (like making sure the revenues and cash flow support it!) but here are six details to be aware of in negotiating a commercial space.
Read and understand the entire lease.
A lease is a legal document and what you don’t know will hurt, ask for clarification on everything you don’t understand. Once signed, the written word is binding, verbal statements are not.A typical commercial lease may have almost 40 sections, not including any riders or addendum's, and it can be difficult to comprehend what the terms and different options mean. Taking the time to read through and analyze a prospective lease can save you time and money in the long run. It may also allow you to add in items that clarify and give you better control of your costs.
Obtaining legal counsel now may save stress and much bigger legal costs later.
Everything is negotiable.
It is important to understand that all things can be negotiable (within reason): rent, base rent, square footage, improvements, lighting, signage, lease terms, options, deposits, possession dates, and more. You may have more success if you look for a few important items that influence your costs.The full cost of rent, maintenance, parking, utilities must fit within your budget. Above all...if you have not developed a cash flow budget, balance sheet and projections, do not sign anything until you are sure that the business revenues can support a lease payment.
Seek to limit your share of Triple Net costs including: Common area maintenance charges; Property taxes passed through; and Insurance on the overall building and property that is owned by the landlord including common area liability insurance.
Define all proposed tenant improvements, as well as square footage (usable is typically less than actual) be certain that all uses common to your business are allowed. Tenant improvements that are professionally installed, such as lighting, walls, plumbing, built in equipment, typically become the property of the landlord. However, you may be required to remove and restore the space at your expense upon termination of the lease.
Make certain that all of your business activities are specifically allowed. Understand that some uses can be prohibited because another tenant has a non-compete clause.
Get an exit clause in case the business fails. Consider short term leases, with options to renew so you have options if your business s outgrows the space or the economy gets worse.
