Leasing commercial office space is one of the largest expenses you acquire when you are opening a new business or you're expanding your business. So it is important to do your homework.
Basically, a lease is much like a partnership agreement in that it sets out the restrictions of a business relationship. When everything goes as planned, most any lease will serve the parties well but the true test occurs when there are obstacles in the partnership. If the lease has not been carefully drafted, an obstacle can become a major problem for either of the parties.
Tenants often don’t read the entire "Standard Form Lease" or sometimes there is something they done understand what it means and if not appropriately brought to the landlords attention before the lease is signed , may not serve their interests when issues arise. On the other hand, a sophisticated tenant will often request changes to the lease that, if not fully understood, can cause unforeseen difficulties for the landlord as well.
Here are a few tips to help you when signing a commercial lease:
- First off, You always want to read the lease to its entirety, make sure you understand each term, word, clause or anything written. If you do not understand a term in the lease ask for clarification from a lawyer or knowledgeable disinterested party. Relying on the landlord or a listing agent to explain their lease is not a great idea because they could mislead you intentionally, or may not understand the lease themselves.
- How is your monthly rent calculated? The most basic equation for calculating a lease payment takes the number of square feet times the cost per square foot, then amortizes that over a 12 month span. It's important that you understand exactly what you are paying for and what expenses the landlord will cover. Are you responsible for any costs other than the rent? Are you responsible for paying for your own utilities and garbage pickup? It’s good to understand that ahead of time.
- If there is any repairs that need to be done before you can move in, have the landlord do repairs before you sign a lease. If any work is to be done after you take occupancy be sure this is detailed in the lease including work completion times. You do not want to have your business shut down for weeks at a time because of ongoing work. Remember that any changes or improvements you make on a commercial property, unless you own that property, becomes an improvement for the land owner. This is an area to surely negotiate with the landlord.
- The lease terms. Consider the growth that you expect to see in your company in the coming years. A short-term lease may be ideal if the growth is hard to forecast, but the downside to short-term leases is that lease rates tend to change. Sometimes long-term lease agreements have the option of expansion so that growth can be accommodated. Long-term leases are ideal when real estate rental prices are low and are forecasted to rise. Short-term leases tend to lead to more frequent moving, which presents costs of time and money.