Looking for that perfect commercial space to rent for your business can be daunting, not to mention time-consuming. Plus, signing a lease agreement is not without risk. To make sure you find the best space for your new business venture and maximise on your lease agreement rights, consider the following:
- Know your needs
- Review renting considerations
- Understand terms of lease
- Identify need(s) to fit out space
- Estimate outgoings and operating expenses
- Set a realistic and convenient time frame
- Take note of the little things
- Maximise on your rights
Know your needs
Found a nice area and spot for your new shop/business location? From here on, you need to do right away – and complete well – your homework! Know the rates and what the rentals are like on the premises you wish to operate your new business.
Don’t forget the specifics: ask for the cost per square metre and compare costs before deciding on finally coming up with a lease agreement.
Doing your homework also means knowing your needs. Exactly what space do you need and how will it make the operations of your business smooth and convenient? Are common areas such as elevators, hallways and restrooms already included within the space you intend to rent? If not, are these common areas conveniently accessible to and from your prospective rental space?
Understand how the landlord also measures the space. Some measurement methods employed by owners include wall thickness, so you must be aware of, if not familiar with, this consideration. Another thing is to always take into account that commercial lease agreements usually provide for and include a percentage-based rental increase annually.
Being clear with your needs and how they are met (or not) by your prospective rental spaces and landlords makes it easier for you to trim down your list of choices and settle with the best option that fits your financial situation and your business needs.
Review renting considerations
Your renting considerations should also include any or a combination of the following:
- Market review information
- Fixed percentage increase
- Consumer price index increase
Make sure you are paying right and not paying too much. If still unsure about figures and the annual rent increases you need to prepare for, consult with your trusted financial advisor and/or accountant for the specifics and ask for guidance for you to finally decide on the best commercial property to rent.
Understand terms of lease
Both short- and long-term lease agreements bring with them benefits and drawbacks. Along with the security, a long-term lease gives you the ability to build up your new business and mold it into an attractive asset.
Short-term lease arrangements enable you to decide whether you will renew your lease agreement or move out to a bigger space if your business has considerably grown by the time your original agreement expires. Thus, understanding the specific terms of a lease and making sure most, if not all, of the things contained in the lease agreement bring benefits and value to your new business is of utmost importance.
The following are lease terms and conditions you need to take into account:
- Security of tenure for the agreed-upon and/or desired length of time
- Rate of rent for the duration of the lease
- Provisions contained in the contract that allow for convenience in your daily operations and make sure that you do not face any additional financial burdens related to the leased space
- Provisions in the contract that allow you to operate a profitable business
- Protection from competition – especially important if your location is in a shopping area or in a row or group of shops the same landlord owns and/or maintains
Identify need(s) to fit out space
By this time, you already have a trimmed down list of prospective rental spaces, if not a final decision on which commercial property to rent. The next thing you need to focus on is whether the space you intend to transform into your shop or business location needs some fitting out.
Of course, fitting out means expenditure so you must ask yourself, first, whether it does require fitting out, and second, if it does, how much the total fit-out cost will be.
In some cases, the fit-out cost is shouldered by your landlord. If not, he or she may offer you a lease incentive payment or rent-free period, or a combination of both, in assistance of the fit-out expenditure. You may be able to customise your arrangement with your landlord regarding the fit-out cost and plan depending on how well you negotiate.
If still unsure, always consult your financial advisor and/or lawyer with a proven expertise on commercial lease agreements and contracts. They may also be able to give you tips on how to productively negotiate with your landlord.
Estimate outgoings and operating expenses
If your lease agreement includes your landlord passing on the operating costs or outgoings to you, or if he/she, too, is charging for these services separately, make sure you negotiate well and come up with a fixed-free or amount cap included in the final agreement.
It is of utmost importance that you make sure your landlord declares and makes you aware of all these expenses and costs before you finally decide and enter into a lease agreement with him/her.
Set a realistic and convenient time frame
As noted above, both short- and long-term lease agreements have their respective pros and cons. Of course, most landlords would prefer you enter with them into a long-term lease agreement, for obvious financial and security reasons.
However, if you think a short-term lease is more appropriate and more convenient for you, then inform your landlord of said preference and negotiate with him or her until you come up with a mutually agreed upon arrangement.
The great thing about short-term leases is the freedom they allow you whether to renew the same agreement, revise it once it expires and then renew, or not renew it at all and look for another space – all, of course, depending on which you think is the best course of action to take for your growing business.
Take note of the little things
The little things matter in finalising your lease agreement. Make sure your agreement includes in its contents full permission to allow for signs you will put up to be visible from and along the street(s), not prohibit those signs. Make sure you and your landlord, as contained in the agreement, understand and are certain who takes care of the taxes, insurance obligations, and even the council and water rates.
Remembering these little things and taking them seriously into account will not only help you design a realistic budget plan but also bring you peace of mind because, simply, you’ve got everything covered.
Maximise on your rights
Before finalising the agreement with your landlord, make sure your lease has a Right of Assignment clause. This clause is important and useful as it allows you the option to transfer the lease to a new tenant.
Other specifics that may be included in the terms which you should take into serious consideration are: the option to renew the lease, the option to expand the current space, details on how the lease is to be terminated and if there are penalties for premature/early termination, and notice requirement(s), among others.
It is important that you negotiate well with your landlord and maximise on your rights in coming up and finalising the lease agreement. Again, if still unclear or unsure how to proceed, speak with and engage the professional services of your financial advisor, accountant, and/or lawyer for a more informed and enlightened commercial space rental decision.