Whether you are a seasoned business owner looking to upgrade to a second or larger location or a new entrepreneur just starting out, the terms of your commercial lease can significantly influence the future of your business. A new or existing concern can expect to contract a new lease every three to five years. There are several things you should consider before you sign on the bottom line.Trust Your Agent
Your real estate professional is an industry insider who understands the ins-and-outs of commercial contracts. Especially in smaller companies, the already overworked owner often decides that he or she can do everything alone, leading to additional stress and possibly a less positive outcome than desired. Your real estate agent can help you with needs assessment. He or she will work with you to determine if your current location has the image, traffic and amenities that suit your business or if you would profit by moving. Once a plan has been set in place, your agent can begin the search for a new property, one that is ideal for your business and suits your budget, while you concern yourself with the important work - running and growing your business.Prepare a Market Survey
In today's troubled economy, it's important to study the market before making an important real estate decision. You, your agent or the two of you together should compile a report about current conditions and do a little economic forecasting regarding the possibilities for future loss or gain. An attractive location with a 70 percent occupancy rate may be more amenable to terms than a less promising spot with only one vacancy. You should also consider the other businesses that will be sharing space with you. A building that houses a direct competitor may not be the best choice. After you've identified several likely locations, it's time to begin the tours. Some properties may require tenant improvements (TI) while others are turnkey ready. Don't be afraid to take notes. The details tend to blend together, especially when you view several properties on a single day.Negotiate!
Once you have found the ideal location and expressed interest, the owner or management company will present you with a standard boilerplate contract. Don't sign yet. Have the agreement reviewed by your broker or real estate attorney. Some items to study include:
- Term. The length of time you agree to occupy the premises and pay rent. New, untried businesses generally profit from a shorter term. Established businesses with a rosy economic outlook can often benefit by locking in rates for a longer term.
- Increases and Renewals. How often the rates will rise and what your options are at the conclusion of the lease. Start-ups that feel a location is particularly important for their business can negotiate terms of first refusal, meaning that when the lease is expired they have the option to stay on if they can pay the pre-negotiated rate change.
- Tenant Improvements. Selling your business to the property owner can include encouraging them to make any necessary upgrades in the interest of keeping your enterprise operating in their building.
- Damages and Casualty. Identifies the party responsible for damage caused by fire, flood, other natural disasters or manmade mayhem. Many small business owners have found themselves financially devastated by events beyond their control.
Signing a commercial lease is the first step in making your dream business a reality or taking your established company to the next level. In an environment that sees businesses failing every day, it's critical that you determine your needs, study the market and negotiate your contract. Your commercial real estate broker can help.