Leasing commercial office space is sometimes the most expensive investment for a small firm. Furthermore, if you agree to inferior conditions, your lease may force you out of business. Here’s what entrepreneurs should know before leasing commercial property to protect themselves.
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What Makes Commercial Leases Unique from Residential Leases
When leasing commercial property, it is important to first grasp the distinctions between leasing residential property and leasing commercial property. Business renters have fewer safeguards but greater negotiating power.
Consumer safeguards are being reduced. The premise underpinning commercial property leasing is that the company and landlord have about equal control. As a result, there are no guaranteed security deposit limits, repair requirements, or eviction or privacy safeguards. Commercial leases are also far more difficult to terminate.
Leases that aren’t typical. Landlords tailor business leases to their own requirements; there are no standard agreements. Landlords prefer longer-term leases since there is a lot more money at risk. You must carefully review any lease conditions or you may be trapped with an undesirable arrangement for a long period.
More adaptability. However, this gives firms greater negotiating leverage to tailor lease terms to their individual requirements.
When Leasing Commercial Property, What Should You Negotiate?
Length. A short-term lease provides greater flexibility if your company requirements change, yet a long-term lease may allow you to lock in a lower cost. A shorter initial lease with one or more renewal options is often a fair compromise. However, if you opt to renew, anticipate your landlord to request a higher rate.
Rent. Always check pricing for comparable places to ensure that you are not being overcharged. While lowering rates may be challenging, at the very least, negotiate for a few months of reduced rent to cover relocation expenses. Because annual rent hikes are typical, request a limit on the rise. Finally, be sure you understand whether you’re signing a gross or net lease. Insurance, maintenance, property taxes, and utilities are all included in the gross lease. No, a net lease does not. So, although a gross lease may be more expensive, it may wind up saving you money in the long term.
Improvements. The more upgrades your commercial office space need, the more negotiating leverage you’ll have. Request that your landlord make these adjustments for free. And, in most cases, the longer the lease you are ready to sign, the more your landlord will be willing to repair.
Repairs and hidden fees According to the US Small Business Association, landlords often charge hidden costs for shared facility maintenance and upkeep. Check how utilities are handled and shared, and get samples of expenses borne by other tenants. Also, be precise about who is in charge of certain maintenance and repairs, and seek financial restrictions on your spending. If your landlord is hesitant to pay for all repairs, request that he or she pay for the maintenance of certain systems, such as the air conditioning or plumbing.
Business safeguards. Always request add-on clauses that will best protect your company to get the most out of your investment.
Subleasing: If you can sublease your space to another tenant, your firm will have a lot more freedom.
Exclusivity: This assures that no direct rivals will be able to lease additional areas on the site.
Co-tenancy: A co-tenancy agreement may safeguard you against customer loss. If an anchor tenant leaves the property and the landlord does not locate a replacement, you have the right to terminate the contract.
Default. Learn what will happen if you fail to make your lease payments. Will you be evicted right away, or can you negotiate a longer period of time to pay? The more clarity you have, the more you can protect your company.