11 Tips for Leasing Commercial Real Estate
Rent is one of the most significant expenditures for small businesses, and poorly negotiated commercial real estate property leases are unfavorable to fledgling companies. Landlords and property managers have perfected the art of property leasing, which puts inexperienced entrepreneurs on a disadvantaged end. Practicing these expert tips can help you get the most out of your property lease clause.
1. Get the construction documentation in advance
If you have to redesign the building to suit your business, you will require the entire building’s construction plans. Your design and renovation technicians will need to have a clear layout of the mechanical, plumbing, and electric wiring systems beforehand.
Acquiring these layouts after the lease agreement has been finalized is expensive and might take a lot of time. Hence the best time to secure them is during the negotiations. Let your landlord deal with them. Getting such small details in order when opening up a store will reduce unnecessary delays and extra storage costs.
2. Consult an expert
Some landlords can be uncanny with lease agreements, especially if you are a first-time tenant. Fortunately, you can get yourself a leasing agent who understands how to rent commercial real estate properties to negotiate better deals for your business. An agent handles the hard negotiations while providing a deep understanding of the real estate property lease sector.
3. Consider the nature of your business.
When moving to a new location, you have to consider all aspects of your business. You don’t want to be in an inaccessible area or be near a successful competitor. Additionally, you have to consider your future space needs and if you have financial muscle you can sustain throughout the disruption. If you are an entrepreneur getting started, you can opt for short-term leases as you figure out your business startup’s direction in the future.
4. Understand your role as a tenant
Different lease agreements have varying landlord and tenant responsibilities. Therefore, it is unwise to assume that commitments from your previous contracts apply to the lease clause on the table. The standard responsibility is that the landlord maintains the exterior while the tenant maintains the interiors. However, you can renegotiate these responsibilities if you feel that the landlord isn’t doing enough.
After settling on your responsibilities, it is advisable to carry out an intensive assessment of the entire building, checking potential faults in the HVAC, plumbing, and electric systems. Remember, after the lease is signed, you will have to pay for any repairs inside the occupancy space. If you are a good negotiator, you might end up settling for maintenance fees only on minor repairs while your landlord handles significant faults.
5. Manage all your costs
Do you have a viable financial plan for your lease? Before you settle for a house, reassess your budget and financing options and check how much you can budget for rent annually. After drawing out a budget, you can negotiate smoothly with your landlord in line with your budget limits.
Once you have a lease at hand, talk to your finance expert or your banker and explore all financial options available for you. It is unwise to use your working capital to settle lease-related costs. There are several financing options you can consider, including the following:
Line of credit
If you encounter a temporary cash-flow shortage while moving, you can use a line-of-credit flexible loan to inject emergency cash into your business.
Leasehold improvement loan
A leased space might require extra touch to fit your business’ layout. A lease improvement loan is a great short term loan option precisely for that. These loans have low-interest rates, and all a banker needs from you is a history of profits or substantial cash flow.
These are unsecured loans that help you pay for business growth and have similar requirements as the leasehold loans.
1. Choose the best market value
Before you settle for a property, you have to review all similar properties around your area and check what they are charging for comparable space. Understanding the median rates in your locality gives you an idea of what to negotiate for during the lease agreement.
2. Get a real estate lawyer
Leases are bound by complex real estate and property statutes. Therefore, it is good to get a commercial lawyer who has advanced knowledge in the sector. Getting a lawyer gives you access to professional legal advice and protects your rights from being violated without your knowledge.
3. Don’t be in a rush to sign
Some landlords add strict deadlines when presenting a lease clause. It is advisable to take your time reviewing the contract and conducting research. How else will you understand your responsibilities in the clause? If you rush things, you might end up with unexpected costs that could break the lease agreement in the long run.
4. Ask for a competitor clause
Having a competitor renting the next room isn’t doing a favor for your business. When setting a property lease, ask your landlord to include a competitor clause that bars them from renting the remaining space to your competitor businesses.
5. What if you wish to terminate?
Terminations terms and conditions are a crucial part of a lease clause. Can the landlord kick you out for not paying rent on time? What if the building is repossessed? What if you want to break a lease for relocation?
Most lease clauses require you to pay full rent for the entire lease duration, even if you will move out earlier. Additionally, terminations lease clauses tend to give more authority to the landlords. You can renegotiate for better terms depending on the nature of your business.
6. Can you get tenant inducements?
Most landlords offer tenant inducements to lure in new clients. When negotiating, remember to ask what incentives you will be getting. If the negotiations go well, you can end up with a three month rent-free period and favorable terms of agreements.
Commercial real estate leases are long term contracts that subject your business to a long term business expense. Therefore, if you get any of the leasing steps wrong, your business will suffer for the entire period of the lease.