The cost of real estate is sometimes the most expensive item that any organisation will spend (beyond the cost of any raw materials used in the manufacturing process). As a result, before discussing pricing and signing the lease, each possible lease must be properly reviewed through a lens constituted of the company’s existing requirements, future expectations, and the quality of the property itself.
When it comes to commercial real estate, there are a lot of charges that are not immediately apparent. These costs might creep up on you months or years down the line if you aren’t prepared. However, additional practical ramifications must be addressed, such as the traffic flow in front of the area or the position of its signs. After all, an office space is the actual body of a company, influencing everything from personnel to profitability and more.
Table of Contents
When considering possible office leases, there are five factors you should certainly consider:
Location
If you work in retail, the placement of your physical facility is critical. After all, if your clients can’t locate you, you won’t be able to sell anything!
Location, on the other hand, has an impact on your personnel. Your workplace should be conveniently accessible, both in terms of distance from your target consumers and parking convenience. Ideally, you should be searching for a place into which your firm can develop, rather than one that now suits it. Failure to do so may result in acute developing pains. Breaking your lease to grow is incredibly expensive and absolutely unneeded if you’ve done your research.
Also, while deciding on a site, don’t forget to factor in your shipping routes, signage prominence, rivals’ locations, and the general “feel” of the community in which the facility is located. If any of these variables is out of whack, your sales may suffer.
The Cost of Maintaining the Space
You’ll never find a perfectly ideal place, no matter how carefully you prepare. To accommodate your company’s expansion, you’ll constantly have to decide whether to expand or relocate. Even if you don’t intend to grow anytime soon, you’ll need to budget for repairs to the buildings and property around them.
The first step is to carefully examine the property you want to buy. It is a good idea to hire an expert to analyse the existing state of the buildings and estimate the total cost of any repair that may be required in the next 3-5 years. You may include these costs in your lease or negotiate with your landlord about which fees you will bear.
Don’t forget to factor in the cost of any essential expansions or alterations as your firm expands. For example, if you need additional computer servers three years from now, can you fit them into the current space, or would you need to create a separate room? Is your landlord able or willing to assist you in defraying the expense of the improvements?
Unexpected or Hidden Fees/Penalties
Leases may include extra hidden expenses, such as security deposits, provisions related to common area renovations, and even fines for graffiti cleaning, in addition to early termination fees. Unfortunately, there is no such thing as a “standard” lease form. Each form is created by the landlord – or, more likely, the landlord’s attorneys. This implies that landlords have a disproportionate amount of influence in leasing agreements and will go to great lengths to safeguard their interests.
As a result, it’s critical that you go through any possible lease agreement or other business paperwork with a fine-toothed comb (and, ideally, legal assistance) to prevent future surprises. Such pricey bombshells have the potential to reduce profitability and damage margins.
Escalations
Generally, leases include provisions for rent increase owing to a variety of factors. These may include general inflation, property improvements, lease term length and duration, traffic flow patterns, and any number of unanticipated occurrences – essentially, whatever the landlord believes he can get away with. If you’re not attentive, your rent might skyrocket – even within the same lease period – and take you off guard.
Most escalations, thankfully, are negotiable. One thing to bear in mind is that depreciation should be included into the lease. Speak with a qualified financial professional to ensure you receive all of the benefits of property depreciation when it comes time to file your taxes; otherwise, your landlord will reap all of the benefits while you are stuck with the roof that needs to be repaired and the air conditioner that no longer works.
Licensing and Zoning
While zoning and licencing are handled by local and state organisations (and should be included in the initial stages of company planning), they also play a role in the leasing process. Or, at the very least, they should, since unanticipated clashes with these two challenges may substantially stymie your company’s progress.
Conditional leases are a fantastic choice if you are unsure about the zoning and licencing regulations in a certain area. They’re also a good idea if your lease is about to expire and you’re considering changing your business even slightly (for example, opening a full-service restaurant instead just a takeout). These leases are only valid and binding if certain conditions are met, allowing you to secure a property without being bound by the lease if something goes wrong during the process.
As with many parts of the company development process, it is preferable to do your study and get your lease right from the start rather than spend time dealing with difficulties after they emerge. Because the leasing procedure is lengthy and legally binding between you and the landlord, it may be exceedingly expensive and devastating to your company. It’s worth the extra effort to hire professionals, such as building inspectors, property lawyers, or tax advisors, to help structure a lease agreement that benefits both you and the landlord.