If you are the owner of a small business and are now planning to expand now is the perfect time to do so. The commercial real estate scenario is highly conducive to growth and chances to get a better deal are at an all time high. Here is what you ought to know about commercial real estate leasing.
What is commercial leasing?
Leasing is a term that is similar in concept to borrowing. One who offers the property is called lease while the borrowing individual is known as lessee. In leasing, no transfer of ownership takes place and the title of the property remains with the lease. Under the terms of lease agreement, the lease offers his property to the lessee for use for a pre-decided duration and after the completion of the duration, the lessee is required to return back the asset to the owner. When we talk about commercial leasing, we are talking about few well known categories such as office, retail, warehouse and ground. Sometimes there is a catch-all hybrid which is referred to as Mixed Use.
Finding the perfect location
To find the perfect location it is necessary to first evaluate the needs and priorities of your business. Sometimes, it is easy to overlook multiple drawbacks in the light of a single big advantage, which could prove harmful for your future business prospects. Showing extra enthusiasm can motivate the landlord to prod you further with sweeteners and inconsequential freebies and lure you into making the deal.
Prepare a check list of all that your business will be requiring to grow and flourish in the near future before physically inspecting the commercial spaces. Once you have the check list ready, it will be easy to navigate your way to only what you require and what you should avoid. Considerations that are to be taken care of while selecting the property:
The current physical condition of Property
The visibility of the property to your customers
Availability of Parking space
Accessibility from different parts of the city
Safety and Insurance issues
Signing a lease
Once you find the perfect location for your new business, it is time to sign to the lease. However, here are some of the points that you need to keep in mind while signing a commercial lease.
Keep emotions aside: There is no friend in the leasing business, least of all your prospective landlord. Therefore, thinking that he will put your interests in front of his is a wishful thinking at the very least and hilarious. Keep your emotions miles away from the negotiation table.
Negotiations: The most important part of leasing, your negotiation skills will ensure how good a deal you are able to get. The first term for your lease would be rent, obviously. Even if you love the location like anything it is not advised to get excited and over commit. Keep your options open and give yourself some flexibility by signing a short term lease with options to renew it. Another factor that most people tend to ignore is the rent appreciation over the entire term. If you are not witty enough to factor these terms in your overall negotiation strategy, it can hit your margins and compromise your cash flow later on.
Who will handle maintenance and bear the expenses?
In commercial leasing, maintenance costs are often tagged on as an extra expense, and the commercial real estate lease charges extra cash for it. It is different to residential rental market where most of the time it is the responsibility of the landlord to undertake all the maintenance and repair work and pay for it. Commercial real estate lease vary in their approach with some putting the entire responsibility of repair on the tenant while other sharing the responsibility with them. You will have to read the lease agreement to know the same.
Reading the lease agreement
You should go through the lease agreement at least twice, as it is a matter of protecting a substantial amount of your monetary investment. If required, hire an attorney who can clarify your doubts and read between the lines of every clause. Here are some add-on clauses that can be a part of your agreement.
Sublease: The clause gives you the freedom and flexibility to sublet your space to another business
Co-tenancy: This clause comes in handy if the commercial space has an anchor tenant, and that tenant closes before the stipulated time. In such situation, a co-tenancy agreement protects you from the potential loss by allowing you to break off the lease in case the outgoing tenant is not replaced.
Is a guarantor required?
Most commercial leasers require you to put in some personal guarantee before signing the agreement to make sure that the rent keeps coming in, even if the business goes south. Does your landlord also require the same?
Making the final decision
All said and done, it is time that you sign the lease agreement. Just be clear on every point and keep an attorney by your side to minimize the risk of any last minute surprises and modifications.
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