One of the first tasks for a new entrepreneur who is starting a business is to lease office space. Be advised that you need to consider many factors before you sign your new lease for office or commercial space.
Be advised that you need to consider many factors before you sign your new office lease.
Renting an office is legally very different than renting an apartment.
Commercial leasing has a whole different set of laws than rental housing agreements.
The office leasing process can quickly become very complicated with all the different consideration factors. You need to think about location, price per square foot, the lease agreement terms, period and growth potential of the space.
When you are ready to move into office space follow these three crucial steps to get the right space for you today and tomorrow at a price and terms that you can afford.
Determine Your Business Space Needs – Today and Tomorrow
Sure office shopping can be fun, dreaming of your successful company and team of employees, but it can also be a sort of scary to make this big decision and commit to the massive payments. Research and preparation will help you make the right decision and feel comfortable with your choice of commercial space.
First, determine exactly how much space you need and what you can afford. Commercial Realtors tell me they meet many entrepreneurs who have no clue as to either their firm needs nor market place prices.
I recommend that before you start to browse the office rental listings, document your space needs. Make two written lists for the perfect office lease – Amenities and Cost.
What amenities do you need in the office you will lease, restrooms, parking, proximity to public transportation, ease of location and more? Make a list and prioritize into “must haves,” such as restrooms and adequate parking, and “nice to have,” low monthly rent, existing shelving, etc.
Research the market rate costs for office rents in the areas you are considering. What is your price range budget? What is your highest rate limit? Jot this down to make your own customized checklist for office leasing.
Take both of these lists with you when you visit possible office spaces and compare them to your lists. You will find that your lists keep you focused and guide you to the right address for your new company headquarters.
Don’t rush your search. Expect that you will need months to find the right space. Utilize co-working and fully furnished offices until you find the right space. It will save you significant cash to use these fully-equipped temporary office spaces and shared office space, even portable office space for starters, and then select a location only to have to move in a year or two because you then found the perfect place.
Also, leasing experts recommend that fast-growing company sign short-term leases, even if the rent is higher, to remain flexible to move to larger quarters when needed and not be committed to office space, they have outgrown.
Office Leases are Tricky – Get Help
WARNING – have a legal professional review your office lease agreement carefully before signing. There are clauses that could cost you the loss of thousands of dollars. As opposed to residential leases, which favor the renter, commercial leases favor the landlord.
These contracts are filled with real estate industry jargon that you will not understand such as “triple net lease”? DO NOT ignore these terms and go ahead and agree you will regret it later. I know because I did that and it cost me $5,000 fee to break a lease that I signed but did not get a lawyer to review and explain to me.
Length of the Lease
Once you have found a possible office location you will want to negotiate the lease term. One or two years is best for most small businesses, with renewal options that detail some rent increases in subsequent years. Landlords will want to tie you into longer lease terms. In the case of retail locations that need to be location-specific, such as restaurants and hair salons, longer contract terms can be an advantage.
Commercial leases can be what is called a “gross lease,” which means that all fees, such as electric, water, landscaping, etc., are included, or it can be a “net lease” which means that charges will be added to your rent. These fees can add up quickly and make your dream office space unaffordable. Negotiate these costs upfront and get them written into the lease, including caps not to exceed amounts for your protection. Make sure these fees are apportioned amongst all the building tenants by square footage.
The most dangerous part of signing a commercial lease is that even if your business fails and you close up your store, you are still legally liable and responsible for the full term of the lease payments. I recommend that you negotiate to include a specific penalty fee for early termination of the lease to avoid this overburden of financial commitment.
If you are considering renting a commercial office space, get a lawyer to review your commercial lease contract.