Leasing commercial space can be one of the more frustrating aspects of starting, or further developing, a business. A range of considerations – rent, duration, location, design, floor plan, capacity (to name a few) – must be taken into account.
As they will quickly admit, many business owners and managers are uncertain how to approach setting up an office space, or opening a retail outlet. They don’t know what risks are inherent in commercial leases, or what questions to ask. Working with a qualified attorney can be useful in such matters; the right lawyer will be adept at protecting his or her clients from legal, and financial, liability.
But there are a few points that all business owners would do well to keep in mind.
Considerations for commercial leases
In renting a space, as in running a business, money matters often take precedent. Prior to taking on a lease, owners or managers should have a good sense of their budget. Simply put, before scouting locations, it helps to know what one can afford. Though the numbers shift from industry to industry, in most cases an entity will allocate between 3 percent and 10 percent of gross sales toward rent, with 10 percent figuring as a more or less absolute ceiling.
It’s important, too, to have an understanding of the additional costs that a lease might entail. There will be property taxes, utility bills, and insurance policies. In many cases, one will have to set a budget for construction – retail, office, and industrial spaces alike are often rented out bare. Likewise, business owners should know whether they’ll have to contribute to communal costs for landscaping, security, or other property maintenance concerns. Such expenses often take one by surprise, and can jeopardize a business’s viability.
A complicating factor is the prospect of negotiation. As detailed in The Balance, Commercial leases are usually more open to modification than residential leases. Landlords are eager to fill their spaces; they are willing to deal. Businesses often have unique needs, which require special deals. Negotiation is an opportunity for an entity to maximize value, but those who enter such proceedings unprepared my find themselves with exorbitant rents for substandard spots.
Minimizing risk. Maximizing profitability.
Commercial leases are not backed by the same consumer protection laws as residential leases. There are, simply put, far fewer rules in place to safeguard commercial tenants. Enlisting the services of an attorney is a simple means to prevent against the risks that result from this scenario. But it’s crucial, too, to have some understanding of what those risks are in the first place.