Starting a business is no small thing. In fact, it’s a big deal! For most entrepreneurs, opening a new business is an exciting time. You’re focused on the future, and that future looks promising. Not only is it full of opportunities, but it also represents its fair share of challenges. One of the initial challenges you’ll face is choosing the perfect location for your business. In most cases, this means signing a commercial lease.
The unfortunate reality is that navigating a commercial lease can be somewhat intimidating for those who have never gone through the process. Our goal is to offer guidance to help you know what to look for, consider, and expect when signing a commercial lease. Here’s what you need to consider when navigating commercial leases.
1. Understand the Lease Terms
Never sign a commercial lease until you’ve read all the terms associated with the lease and are certain you understand them fully. In fact, it is wise to consult with an attorney who specializes in leases or real estate law so that your attorney can explain anything that is unclear to you and present the key details and conditions of your lease in “layman’s” terms.
In other words, you need an attorney to decipher the legal terms that are included in most lease contracts. It might be different once you’re an old pro at signing commercial leases, but you do not want your new business venture to turn into a “teachable moment” regarding lease terms and contracts.
2. Location and Property Condition
Location, location, location. It is one of the most important factors to consider when leasing property for your business. Make sure to keep these considerations in mind when choosing your business property.
- Ample parking for customers and employees.
- Easy accessibility for customers and employees.
- The condition of the property (as in, does it need renovations or repairs?).
- Suitability of the property for your business needs.
- Accessibility compliance for handicapped employees and customers.
You need to thoroughly inspect the property to ensure it will work for what you need for your business. Don’t forget key details such as wiring, code compliance, abundant electrical outlets for business equipment needs, interior and exterior lighting, and security. Also, remember that a building that is in a state of disrepair does not instill confidence among consumers or for the sake of recruiting.
3. Lease Duration and Renewal Options
One thing many new business owners do not consider is the duration of the lease term and renewal options available to them. While you are full of optimism and bright ideas for the future, the last thing you want is to be stuck in a lengthy lease if you discover the location isn’t suitable for your business or if you are unsure of your operation's long-term viability. Instead, choose shorter lease terms, even if they come at a higher price, with the option to extend the lease if the location is a giant success for your business needs.
On the other hand, if you are confident that your business will be a great success and that the location offers long-term compatibility for your business needs, then you may wish to opt-in for a longer lease term that locks in your lease rate for the duration of the initial lease.
4. Rent Amount and Payment Terms
Another thing to consider is not only that your budget can accommodate the rent payments, but also that the timing of those payments works with your average monthly cash flow. In other words, you don’t want your rent to be due on the day of the month when you’ll have the least cash available each month to pay the rent. Chances are that many property owners may be willing to negotiate on the timing – provided it works with their financial needs – if you find a location and property that are perfect but the rent due date doesn’t work for you.
Ensure you also understand any late payment penalties and fees in the lease and the landlord’s rights if you default on the lease. That way, there are no unpleasant surprises at a time that is unpleasant enough in its own right.
5. Maintenance and Repair Responsibilities
Finally, this is a point that can be highly problematic if you don’t have a clear understanding about going into the lease. The lease should clearly state which maintenance and repair responsibilities are the tenant's (yours) and which are the responsibility of the property owner. If the lease does not, ask that a new lease document is made that includes these details, and do not sign until there is a clear understanding of your responsibilities vs. that of the property owner. This also allows you to factor in the costs of repairs and maintenance needs you’ll face, so you can factor them into your budget.
Signing a commercial lease is a large commitment for business owners. One you should take your time and fully understand before signing. When you take these considerations into account, you are better equipped to navigate the sometimes shark-infested waters of the commercial lease process. The first of many important decisions you’ll make for your new business venture.