RENTAL PROPERTY / COMMERCIAL REAL ESTATE / COMMERCIAL LEASE
Tips for Making Solid Business Agreements and Contracts
Steps to Determining the Space You Need for Your Business
First, before you plunge headlong into the search for suitable commercial space, think carefully about whether you really need to find
space now. It may make more sense to run your business from your home. If you’re just starting out in a business that doesn’t require
significant space or ready access to the public, maybe you can keep expenses low by working out of your house or apartment.
Tips for Making Solid Business Agreements and Contracts
Steps to Determining the Space You Need for Your Business
First, before you plunge headlong into the search for suitable commercial space, think carefully about whether you really need to find
space now. It may make more sense to run your business from your home. If you’re just starting out in a business that doesn’t require
significant space or ready access to the public, maybe you can keep expenses low by working out of your house or apartment.
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Ten Tips for Making Solid Business Agreements and Contracts
Follow these guidelines to make an enforceable, plain-English business agreement or contract.
1. Get it in writing.
Although oral agreements are legal and binding in many situations, they're often difficult to enforce in court (and in some situations, they aren't enforceable at all). In the business world, most agreements should be
in writing even if the law doesn't require it. A written agreement is less risky than an oral agreement, because you have a document that clearly spells out each party's rights and obligations in case of confusion or
disagreement.
2. Keep it simple.
Contrary to what most lawyers think, you don't need a lot of "heretofores" and "party of the first part" legalese to make a contract enforceable. Instead, create short, clear sentences with simple, numbered paragraph
headings that alert the reader to what's in the paragraph.
3. Deal with the right person.
Don't waste time negotiating a business agreement with a junior person who has to okay everything with the boss. If you sense that this is happening, politely but firmly request to be put in touch with the person in
charge. Make sure the person you negotiate with has the authority to bind the business and has a vested interest in making sure the business performs its obligations under the agreement. If you're not sure who that
is, ask. In a smaller business, it might be one of the owners; in a larger organization it might be a chief executive officer or chief operating officer.
4. Identify each party correctly.
You'd be surprised how often businesspeople get this wrong and how important it is. You need to include the correct legal names of the parties to the contract so it's clear who is responsible for performing the
obligations under the agreement (and who you have legal rights against if things go wrong). For instance, if a business is organized as an LLC or a corporation, identify it by its correct legal name --including the
Inc. or LLC suffix -- not by the names of the people who are signing the agreement for the business.
5. Spell out all of the details.
The body of the agreement should spell out the rights and obligations of each party in detail. Don't leave anything out; if you discuss something verbally and shake on it but it's not in the contract, it will be next to
impossible to enforce. In the world of contract law, judges (with a few exceptions) may only interpret a contract from its "four corners," not from what the parties said to each other. If you forget to include something,
you can always create a short written amendment. Or, if you haven't signed the agreement, you can handwrite the change into the contract. If parties initial the change, it becomes part of the contract.
6. Specify payment obligations.
Specify who pays whom, when the payments must be made, and the conditions for making payments. As you might guess, money is often a contentious issue, so this part should be very detailed. If you're going to
pay in installments or only when work is completed to your satisfaction, say so and list dates, times, and requirements. Consider including the method of payment as well. While some people might be okay with a
business check or business charge card, others might want a cashier's check or even cash.
7. Agree on circumstances that terminate the contract.
It makes sense to set out the circumstances under which the parties can terminate the contract. For instance, if one party misses too many important deadlines, the other party should have the right to terminate the
contract without being on the hook legally for breaching (violating) the agreement.
8. Agree on a way to resolve disputes.
Write into your agreement what you and the other party will do if something goes wrong. You can decide that you will handle your dispute through arbitration or mediation instead of going to court, which takes up
a lot of time and money.
9. Pick a state law to govern the contract.
If you and the other party are located in different states, you should choose only one of your state's laws to apply to the contract to avoid sticky legal wrangling later. In addition, you may want to specify where you
will mediate, arbitrate, or bring legal actions under the contract. This will simplify your life if a dispute does crop up.
10. Keep it confidential.
Often, when one business hires another to perform a service, the other business will become privy to sensitive business information. Your agreement should contain mutual promises that each party will keep strictly
confidential any business information it learns of while performing the contract.
Follow these guidelines to make an enforceable, plain-English business agreement or contract.
1. Get it in writing.
Although oral agreements are legal and binding in many situations, they're often difficult to enforce in court (and in some situations, they aren't enforceable at all). In the business world, most agreements should be
in writing even if the law doesn't require it. A written agreement is less risky than an oral agreement, because you have a document that clearly spells out each party's rights and obligations in case of confusion or
disagreement.
2. Keep it simple.
Contrary to what most lawyers think, you don't need a lot of "heretofores" and "party of the first part" legalese to make a contract enforceable. Instead, create short, clear sentences with simple, numbered paragraph
headings that alert the reader to what's in the paragraph.
3. Deal with the right person.
Don't waste time negotiating a business agreement with a junior person who has to okay everything with the boss. If you sense that this is happening, politely but firmly request to be put in touch with the person in
charge. Make sure the person you negotiate with has the authority to bind the business and has a vested interest in making sure the business performs its obligations under the agreement. If you're not sure who that
is, ask. In a smaller business, it might be one of the owners; in a larger organization it might be a chief executive officer or chief operating officer.
4. Identify each party correctly.
You'd be surprised how often businesspeople get this wrong and how important it is. You need to include the correct legal names of the parties to the contract so it's clear who is responsible for performing the
obligations under the agreement (and who you have legal rights against if things go wrong). For instance, if a business is organized as an LLC or a corporation, identify it by its correct legal name --including the
Inc. or LLC suffix -- not by the names of the people who are signing the agreement for the business.
5. Spell out all of the details.
The body of the agreement should spell out the rights and obligations of each party in detail. Don't leave anything out; if you discuss something verbally and shake on it but it's not in the contract, it will be next to
impossible to enforce. In the world of contract law, judges (with a few exceptions) may only interpret a contract from its "four corners," not from what the parties said to each other. If you forget to include something,
you can always create a short written amendment. Or, if you haven't signed the agreement, you can handwrite the change into the contract. If parties initial the change, it becomes part of the contract.
6. Specify payment obligations.
Specify who pays whom, when the payments must be made, and the conditions for making payments. As you might guess, money is often a contentious issue, so this part should be very detailed. If you're going to
pay in installments or only when work is completed to your satisfaction, say so and list dates, times, and requirements. Consider including the method of payment as well. While some people might be okay with a
business check or business charge card, others might want a cashier's check or even cash.
7. Agree on circumstances that terminate the contract.
It makes sense to set out the circumstances under which the parties can terminate the contract. For instance, if one party misses too many important deadlines, the other party should have the right to terminate the
contract without being on the hook legally for breaching (violating) the agreement.
8. Agree on a way to resolve disputes.
Write into your agreement what you and the other party will do if something goes wrong. You can decide that you will handle your dispute through arbitration or mediation instead of going to court, which takes up
a lot of time and money.
9. Pick a state law to govern the contract.
If you and the other party are located in different states, you should choose only one of your state's laws to apply to the contract to avoid sticky legal wrangling later. In addition, you may want to specify where you
will mediate, arbitrate, or bring legal actions under the contract. This will simplify your life if a dispute does crop up.
10. Keep it confidential.
Often, when one business hires another to perform a service, the other business will become privy to sensitive business information. Your agreement should contain mutual promises that each party will keep strictly
confidential any business information it learns of while performing the contract.
How Commercial Leases Are Made
A landlord’s proposed lease is just the starting point from which you can negotiate changes.
The lease that you and your landlord sign defines your legal relationship. Along with your insurance policy and
your loan documents, your lease will be one of the most important legal documents in your filing cabinet.
What does the lease do? The lease is a contract in which:
You agree to pay rent for a certain period of time.
You agree to abide by other conditions (such as using the space for a consulting business only, or not
displaying outside signs unless the landlord first approves them).
Your landlord agrees to let your business occupy the space for a set amount of time.
Your landlord may agree to physically alter the space to fit your business, or provide amenities such as on-site
parking and weekly janitorial service.
The landlord usually starts the process. Typically, you’ll be working with a lease form that’s been written by the
landlord or the landlord’s lawyer -- and you can bet that neither one of them will be looking out for your best
legal or business interests. In order to level the playing field, you need to learn a bit about the terms of a
business lease, so that the landlord’s proposed lease is just the starting point from which you’ll negotiate
changes.
There are no standard leases. Contrary to what a landlord may have you believe, there is no such thing as a
“standard” commercial lease. Even if the landlord brings out a form that’s widely used in your community or
printed by a legal forms publisher, it can always be modified. The only constraints on your landlord’s ability to
negotiate come from pre-existing promises to other tenants in the building and obligations to lenders or
insurers.
There’s always room to negotiate. No matter how official-looking the document that comes out of the landlord’s
or broker’s briefcase, keep in mind that it’s negotiable. Just how negotiable depends on decidedly non-legal
issues such as how tight the market is for your desired space, how badly the landlord wants to rent the space to
you, and how badly you want it. Within the range of negotiability, however, your knowledge of lease clauses
and the market will determine the success of the lease negotiation.
You'll need to decipher the meaning of lease clauses. Leases are full of legalese. Lawyers often dress up lease
clauses in dense legal verbiage or burden them with mile-long sentences.The chart below may help you
match a clause title to its subject matter.
A landlord’s proposed lease is just the starting point from which you can negotiate changes.
The lease that you and your landlord sign defines your legal relationship. Along with your insurance policy and
your loan documents, your lease will be one of the most important legal documents in your filing cabinet.
What does the lease do? The lease is a contract in which:
You agree to pay rent for a certain period of time.
You agree to abide by other conditions (such as using the space for a consulting business only, or not
displaying outside signs unless the landlord first approves them).
Your landlord agrees to let your business occupy the space for a set amount of time.
Your landlord may agree to physically alter the space to fit your business, or provide amenities such as on-site
parking and weekly janitorial service.
The landlord usually starts the process. Typically, you’ll be working with a lease form that’s been written by the
landlord or the landlord’s lawyer -- and you can bet that neither one of them will be looking out for your best
legal or business interests. In order to level the playing field, you need to learn a bit about the terms of a
business lease, so that the landlord’s proposed lease is just the starting point from which you’ll negotiate
changes.
There are no standard leases. Contrary to what a landlord may have you believe, there is no such thing as a
“standard” commercial lease. Even if the landlord brings out a form that’s widely used in your community or
printed by a legal forms publisher, it can always be modified. The only constraints on your landlord’s ability to
negotiate come from pre-existing promises to other tenants in the building and obligations to lenders or
insurers.
There’s always room to negotiate. No matter how official-looking the document that comes out of the landlord’s
or broker’s briefcase, keep in mind that it’s negotiable. Just how negotiable depends on decidedly non-legal
issues such as how tight the market is for your desired space, how badly the landlord wants to rent the space to
you, and how badly you want it. Within the range of negotiability, however, your knowledge of lease clauses
and the market will determine the success of the lease negotiation.
You'll need to decipher the meaning of lease clauses. Leases are full of legalese. Lawyers often dress up lease
clauses in dense legal verbiage or burden them with mile-long sentences.The chart below may help you
match a clause title to its subject matter.
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Dealing With Zoning Problems
If you've found a spot that's perfect -- except that it lacks the zoning you need -- you may be able to work the
situation to your favor.
Once you've found a location that meets the needs of your business, it can be quite a disappointment to
discover that it may not be properly zoned for what you want to do there. Fortunately, an unfavorable
zoning situation doesn't necessarily mean you're out of luck. There's a certain amount of administrative
discretion under building codes and zoning ordinances -- enough that it can help greatly to have the
administrators on your side. Here are some ideas for accomplishing this.
Seek Support from the Business Community
If you employ local people and will contribute positively to the economy, it may pay to make contact with
city or county business development officials or even the chamber of commerce. If they see your business
as an asset and don't want you to locate in the next city, they may be helpful in steering you through the
building and safety department and may even advocate on your behalf before zoning and planning
officials. Trade associations and merchants' associations may also come to your aid if you need building
and safety officials to decide in your favor in an area in which they have some administrative discretion.
Finally, contractors, lawyers, and others who are familiar with the system and the personalities often know
how to get things done and can be helpful to you.
Appealing an Adverse Ruling
The decision of a zoning or building official isn't necessarily final. If you get an adverse decision from the
local Planning Commission, for example, you may be able to have a board of zoning adjustment or board
of appeals interpret the zoning ordinance in a way that's favorable to you. Alternatively, you may be able to
obtain a variance (a special exception to a zoning law) if a strict interpretation of the ordinance causes a
hardship. In some cases, you can get a conditional use permit, which lets you use the property in question
for your kind of business as ling as you meet certain conditions set down by the administrative panel.
In dealing with administrators and especially with appeals boards, it's important to have the support of
neighbors and others in your community. A favorable petition signed by most other businesses in your
immediate area or oral expressions of support from half a dozen neighbors can make the difference
between success and failure at an administrative hearing. Conversely, if objectors are numerous and
adamant, you may not get what you're after. So if you sense opposition developing from those living or
doing business nearby, try to resolve your differences before you get to a public hearing -- even if it means
you must make compromises on the details of your proposal.
Going to Court
Every day, hundreds if not thousands of interpretations and applications of building and zoning laws are
worked out through negotiation with administrators and through administrative appeals. But if these
channels fail, it's possible in many instances to go to court. This can be very expensive and
time-consuming. What good is it if you win your battle for a permit to remodel your premises but you waste
two years getting to that point?
Still, there are times when what you're seeking is so valuable and your chances of success are so great that
you can afford both the time and money to get a definitive ruling from the courts. And in some instances,
you can get a court to consider your dispute fairly quickly. If, for example, you submitted plans to the city
that complied with all building and safety codes, and the building official refused to issue a building permit
unless you agreed to put in some additional improvements you believe are not required by the ordinance,
you could quickly go to court asking for an order of "mandamus" based on the fact that the administrator
wasn't following the law.
Before you consider court action, however, get as much information as you can about the cost of litigation,
how long it will take (you can win in the court trial, but the city might decide to appeal), and the likelihood
of your ultimate success. This is a specialized corner of the law, so you're going to need someone who's
had experience in the field -- and there may not be that many to choose from in any given location. Look
for a lawyer who's represented a similar business in a dispute with the city or someone who formerly worked
as a city attorney and knows all the ins and outs of the local ordinances.
Example: How Strategic Planning Pays Off
Shelby, owner of Small World Books, is delighted to learn that the drugstore next door is going out of
business. He immediately seeks to buy or sign a long-term lease for the building so he can expand his
profitable business. The future looks rosy.
Not so fast. Shelby learns that for his new business use of the building, he'll have to supply eight parking
spaces to get a permit. Doing this in his desperately crowded neighborhood is totally impossible at anything
approaching an affordable price.
Instead of giving up, Shelby asks the city planning commission for a variance to waive the parking spaces
rule. A public hearing is scheduled. Shelby knows he has to put on a persuasive case, so he:
Calls hundreds of local writers, publishers, critics, educators and book lovers to pack the hearing and testify
that an expanded bookstore will be a great community resource.
Documents the prohibitive cost of buying or leasing the required parking spaces.
Offers to validate at a parking at a lot four blocks away, just outside the worst of the congested area.
Hires an architect who determines that a heavily used, nearly public garage can accommodate 20 more
cars if the parking spaces are striped differently.
If you've found a spot that's perfect -- except that it lacks the zoning you need -- you may be able to work the
situation to your favor.
Once you've found a location that meets the needs of your business, it can be quite a disappointment to
discover that it may not be properly zoned for what you want to do there. Fortunately, an unfavorable
zoning situation doesn't necessarily mean you're out of luck. There's a certain amount of administrative
discretion under building codes and zoning ordinances -- enough that it can help greatly to have the
administrators on your side. Here are some ideas for accomplishing this.
Seek Support from the Business Community
If you employ local people and will contribute positively to the economy, it may pay to make contact with
city or county business development officials or even the chamber of commerce. If they see your business
as an asset and don't want you to locate in the next city, they may be helpful in steering you through the
building and safety department and may even advocate on your behalf before zoning and planning
officials. Trade associations and merchants' associations may also come to your aid if you need building
and safety officials to decide in your favor in an area in which they have some administrative discretion.
Finally, contractors, lawyers, and others who are familiar with the system and the personalities often know
how to get things done and can be helpful to you.
Appealing an Adverse Ruling
The decision of a zoning or building official isn't necessarily final. If you get an adverse decision from the
local Planning Commission, for example, you may be able to have a board of zoning adjustment or board
of appeals interpret the zoning ordinance in a way that's favorable to you. Alternatively, you may be able to
obtain a variance (a special exception to a zoning law) if a strict interpretation of the ordinance causes a
hardship. In some cases, you can get a conditional use permit, which lets you use the property in question
for your kind of business as ling as you meet certain conditions set down by the administrative panel.
In dealing with administrators and especially with appeals boards, it's important to have the support of
neighbors and others in your community. A favorable petition signed by most other businesses in your
immediate area or oral expressions of support from half a dozen neighbors can make the difference
between success and failure at an administrative hearing. Conversely, if objectors are numerous and
adamant, you may not get what you're after. So if you sense opposition developing from those living or
doing business nearby, try to resolve your differences before you get to a public hearing -- even if it means
you must make compromises on the details of your proposal.
Going to Court
Every day, hundreds if not thousands of interpretations and applications of building and zoning laws are
worked out through negotiation with administrators and through administrative appeals. But if these
channels fail, it's possible in many instances to go to court. This can be very expensive and
time-consuming. What good is it if you win your battle for a permit to remodel your premises but you waste
two years getting to that point?
Still, there are times when what you're seeking is so valuable and your chances of success are so great that
you can afford both the time and money to get a definitive ruling from the courts. And in some instances,
you can get a court to consider your dispute fairly quickly. If, for example, you submitted plans to the city
that complied with all building and safety codes, and the building official refused to issue a building permit
unless you agreed to put in some additional improvements you believe are not required by the ordinance,
you could quickly go to court asking for an order of "mandamus" based on the fact that the administrator
wasn't following the law.
Before you consider court action, however, get as much information as you can about the cost of litigation,
how long it will take (you can win in the court trial, but the city might decide to appeal), and the likelihood
of your ultimate success. This is a specialized corner of the law, so you're going to need someone who's
had experience in the field -- and there may not be that many to choose from in any given location. Look
for a lawyer who's represented a similar business in a dispute with the city or someone who formerly worked
as a city attorney and knows all the ins and outs of the local ordinances.
Example: How Strategic Planning Pays Off
Shelby, owner of Small World Books, is delighted to learn that the drugstore next door is going out of
business. He immediately seeks to buy or sign a long-term lease for the building so he can expand his
profitable business. The future looks rosy.
Not so fast. Shelby learns that for his new business use of the building, he'll have to supply eight parking
spaces to get a permit. Doing this in his desperately crowded neighborhood is totally impossible at anything
approaching an affordable price.
Instead of giving up, Shelby asks the city planning commission for a variance to waive the parking spaces
rule. A public hearing is scheduled. Shelby knows he has to put on a persuasive case, so he:
Calls hundreds of local writers, publishers, critics, educators and book lovers to pack the hearing and testify
that an expanded bookstore will be a great community resource.
Documents the prohibitive cost of buying or leasing the required parking spaces.
Offers to validate at a parking at a lot four blocks away, just outside the worst of the congested area.
Hires an architect who determines that a heavily used, nearly public garage can accommodate 20 more
cars if the parking spaces are striped differently.
Ten Steps to Determining the Space You Need for Your
Business
Prioritize your needs before you look for commercial space to rent.
Whether you’re a small start-up or an established business, you should begin each search by
carefully thinking through your needs. A clear understanding of what you do (and don’t) want for
your business will save precious time and money, commodities that you undoubtedly want to plow
into the business itself. So before you hit the pavement or engage a broker to help you find the
right spot, go through the points below and analyze what’s most important to you in a business
rental.
First, before you plunge headlong into the search for suitable commercial space, think carefully
about whether you really need to find space now. It may make more sense to run your business
from your home. If you’re just starting out in a business that doesn’t require significant space or
ready access to the public, maybe you can keep expenses low by working out of your house or
apartment.
Or, if you’re already renting space but looking to move, you might consider ways to improve your
current lease situation and avoid the expense and inconvenience of relocating. Take another look
at your lease -- does it have an option clause, enabling you to expand into available space?
1. Priorities. If you’re convinced that now is the time to move, think carefully about what you need,
would like, and won’t abide. Take out a sheet of paper and list items in three columns: "Must
Have," "Nice to Have," and "Won’t Have." Your goal is to end up with a concise statement
expressed in words (“downtown area”) or numbers (“maximum $3,000 rent”). When you begin to
consider available space, you can use this list to quickly and concisely evaluate its suitability.
2. Rent. The first issues to consider are the most obvious and, for many, the most important. Figure
out the maximum rent your business can afford to pay per month. And if the landlord asks you to
put down a security deposit before you move in, think about whether your reserves can handle a
particularly big hit in the first month. Finally, consider how much money you can afford to spend
to alter the space to fit your needs and tastes.
3. Location. The physical location of your business is likely to be important to you, your
employees, your customers or clients, and/or your suppliers. The more people and groups you
need to please, the smaller the number of possible rentals that will fit the bill. Consider the
neighborhood, commuting time, and access to public transportation.
4. Length of the lease. It may be important for you to secure a space that will be yours for a long
time to come -- or you might want the flexibility of a shorter lease. Do you need to find a place
right away? Or do you have the luxury of shopping around until you see the perfect spot? You
need to assign a value -- a priority -- to the length of the lease and when it’s available.
5. Size and physical features. Almost every tenant is concerned about the size of the rental. You’ll
want enough space, but to keep the rent down, limit the size to what you really need. You’ll want
the space to be well laid-out, comfortable, and welcoming to employees, clients, and customers.
6. Parking. For many businesses, it’s essential to have ample parking -- whether in a designated lot
on the building site, on the street, or in a nearby parking garage. Parking may be a high priority for
several reasons. If public transit is inadequate, people will need to drive to your business. If your
business involves selling or servicing large items such as stereo equipment, customers will need
nearby parking.
7. Building security. If crime is a known problem in the neighborhood and customers or employees
are assaulted or robbed, you may be found partially responsible if you have not taken reasonable
steps to prevent criminal incidents, or at least warn of them. Your landlord, too, may ultimately
bear some responsibility, but the portion of a jury award or settlement figure that you end up
paying is hardly the point. You never want to be in a position of worrying about customers’ and
employees’ safety. So think carefully about the security of the neighborhood, and if you conclude
that the risk is too high, look elsewhere.
8. Image and maintenance. The way a building looks -- and how it’s maintained -- will be
important to some and practically irrelevant to others. In general, the more your business serves
the public, the more important is the building’s appearance. If no one ever sees or visits your
business, it may not matter much, except to you and your employees.
9. Expansion or purchase potential. If you plan on growing your business or would like to own your
building in the future, you may want to rent space that has the potential for expansion or
purchase. You’ll save yourself the hassle and expense of another search and move to new space,
and you may be able to lock in favorable expansion or purchase terms now, in your lease. Look for
a a lease with an option to renew or an option to buy.
10. Neighboring tenants. It may be important to be in a building with certain types of tenants -- for
example, businesses that complement yours or provide a needed service. Lawyers, for example,
may want to locate in a building where there are accountants or title insurance providers.
Healthcare professionals may want to be near a hospital, pharmacy, or lab. Whatever your
business, you may want to find a building that houses a health club, coffee shop, or a fast copy
service that you, your employees, or customers will find handy.
-----------------------------------------------------------------
Tips for Assessing the Cost of the Rental
The true cost of a rental is not always the monthly rent.
Once you’ve found space that looks promising and worth pursuing, it’s time to figure out the true
cost of the rental. You might ask, isn’t the monthly rent all you need to know? Unfortunately, it’s
not that simple. For starters, with commercial space, the monthly rent can be a complicated
figure, composed of various factors and calculated in downright Byzantine ways. And there are
other expenses, which may not be called rent, but nevertheless feel like rent when you pay them
on a regular basis. On the positive side, if you’re lucky, there may even be some savings -- like free
rent for the first month or two -- that should be taken into account.
There are at least two important reasons to determine the true cost of leasing a given space. First,
you need to make sure that the cost fits your budget. Second, if you’re comparing two or three
different spaces, you need to know the true cost of each space if your comparisons are to mean
anything. Once you understand how a prospective landlord measured the space and what kind of
rent computation you’re being offered, you’ll be ready to roughly compare the rental costs for two
or more places you’re considering.
The following tips cover important steps to take determine the true cost of the rental.
1. Determine how the landlord has measured the square feet. Commercial space is often
advertised and rented on a cost-per-square-foot basis, rather than a descriptive basis (such as “the
first floor”). For example, an ad might describe space as “2,000-Square-Foot Office Suite in New
Building” or “2,000 Square Feet of Prime Retail Space.” However, 2,000 square feet doesn’t
always mean that you’ll pay for and occupy exactly 2,000 square feet.
Strange as it may seem, many landlords -- especially in office buildings -- take their measurements
from the middle or even the outside of exterior walls. It’s a bit like the butcher who charges you for
the bone and fat as well as the edible portion of the steak. Obviously, if a landlord uses this
method of measurement, you’ll wind up paying not only for usable space but also for some or all
of the thickness of the walls.
2. Determine whether and how much you’ll be paying for common areas.
In many buildings, there are parts of the structure or grounds that you’ll share with other tenants.
For example, you and other tenants may share lobbies, hallways, elevator shafts, bathrooms, and
parking lots. When you add these spaces up, they can amount to a hefty chunk of the property.
Don’t assume that the landlord is going to let you use these shared facilities for free.
3. Don’t discount the importance of the layout. The way that a space is laid out -- not just its size --
will have a lot to do with whether you’re getting your money’s worth. For example, awkward angles,
interrupted workspaces, or narrow corridors will be less useful than wide-open areas and
passageways that can accommodate bookshelves, office equipment, dividers, and well-designed
work areas. Your rental cost may be less for a $20-per-square-foot space that’s efficiently laid out
than for an $18-per-square-foot space with an awkward configuration, simply because you’ll need
less of the $20-per-square-foot space.
4. Ask whether you will be required to pay for extras. If this is your first foray into the world of
commercial leasing, you may be surprised to learn that the rent doesn’t necessarily mean what it
does when you rent an apartment or house. In a residential situation, rent is normally one fixed
amount. You’re rarely asked to pay additional rent -- sums to cover operating expenses such as
building insurance, maintenance, or real estate taxes. These costs are, of course, taken into
consideration when the landlord sets the rent for an apartment, but they’re not added on as
separate charges. In a commercial situation, however, you may be asked to pay for some or all of
these additional sums.
Ask if the landlord will want a percentage of your profits. Shopping center landlords often demand
a share of a retail tenant’s profits in addition to the monthly rent. If you have a retail business and
are headed for the mall, you may be asked to pay what’s known as "percentage rent."
---------------------------------------------------------------------
Business
Prioritize your needs before you look for commercial space to rent.
Whether you’re a small start-up or an established business, you should begin each search by
carefully thinking through your needs. A clear understanding of what you do (and don’t) want for
your business will save precious time and money, commodities that you undoubtedly want to plow
into the business itself. So before you hit the pavement or engage a broker to help you find the
right spot, go through the points below and analyze what’s most important to you in a business
rental.
First, before you plunge headlong into the search for suitable commercial space, think carefully
about whether you really need to find space now. It may make more sense to run your business
from your home. If you’re just starting out in a business that doesn’t require significant space or
ready access to the public, maybe you can keep expenses low by working out of your house or
apartment.
Or, if you’re already renting space but looking to move, you might consider ways to improve your
current lease situation and avoid the expense and inconvenience of relocating. Take another look
at your lease -- does it have an option clause, enabling you to expand into available space?
1. Priorities. If you’re convinced that now is the time to move, think carefully about what you need,
would like, and won’t abide. Take out a sheet of paper and list items in three columns: "Must
Have," "Nice to Have," and "Won’t Have." Your goal is to end up with a concise statement
expressed in words (“downtown area”) or numbers (“maximum $3,000 rent”). When you begin to
consider available space, you can use this list to quickly and concisely evaluate its suitability.
2. Rent. The first issues to consider are the most obvious and, for many, the most important. Figure
out the maximum rent your business can afford to pay per month. And if the landlord asks you to
put down a security deposit before you move in, think about whether your reserves can handle a
particularly big hit in the first month. Finally, consider how much money you can afford to spend
to alter the space to fit your needs and tastes.
3. Location. The physical location of your business is likely to be important to you, your
employees, your customers or clients, and/or your suppliers. The more people and groups you
need to please, the smaller the number of possible rentals that will fit the bill. Consider the
neighborhood, commuting time, and access to public transportation.
4. Length of the lease. It may be important for you to secure a space that will be yours for a long
time to come -- or you might want the flexibility of a shorter lease. Do you need to find a place
right away? Or do you have the luxury of shopping around until you see the perfect spot? You
need to assign a value -- a priority -- to the length of the lease and when it’s available.
5. Size and physical features. Almost every tenant is concerned about the size of the rental. You’ll
want enough space, but to keep the rent down, limit the size to what you really need. You’ll want
the space to be well laid-out, comfortable, and welcoming to employees, clients, and customers.
6. Parking. For many businesses, it’s essential to have ample parking -- whether in a designated lot
on the building site, on the street, or in a nearby parking garage. Parking may be a high priority for
several reasons. If public transit is inadequate, people will need to drive to your business. If your
business involves selling or servicing large items such as stereo equipment, customers will need
nearby parking.
7. Building security. If crime is a known problem in the neighborhood and customers or employees
are assaulted or robbed, you may be found partially responsible if you have not taken reasonable
steps to prevent criminal incidents, or at least warn of them. Your landlord, too, may ultimately
bear some responsibility, but the portion of a jury award or settlement figure that you end up
paying is hardly the point. You never want to be in a position of worrying about customers’ and
employees’ safety. So think carefully about the security of the neighborhood, and if you conclude
that the risk is too high, look elsewhere.
8. Image and maintenance. The way a building looks -- and how it’s maintained -- will be
important to some and practically irrelevant to others. In general, the more your business serves
the public, the more important is the building’s appearance. If no one ever sees or visits your
business, it may not matter much, except to you and your employees.
9. Expansion or purchase potential. If you plan on growing your business or would like to own your
building in the future, you may want to rent space that has the potential for expansion or
purchase. You’ll save yourself the hassle and expense of another search and move to new space,
and you may be able to lock in favorable expansion or purchase terms now, in your lease. Look for
a a lease with an option to renew or an option to buy.
10. Neighboring tenants. It may be important to be in a building with certain types of tenants -- for
example, businesses that complement yours or provide a needed service. Lawyers, for example,
may want to locate in a building where there are accountants or title insurance providers.
Healthcare professionals may want to be near a hospital, pharmacy, or lab. Whatever your
business, you may want to find a building that houses a health club, coffee shop, or a fast copy
service that you, your employees, or customers will find handy.
-----------------------------------------------------------------
Tips for Assessing the Cost of the Rental
The true cost of a rental is not always the monthly rent.
Once you’ve found space that looks promising and worth pursuing, it’s time to figure out the true
cost of the rental. You might ask, isn’t the monthly rent all you need to know? Unfortunately, it’s
not that simple. For starters, with commercial space, the monthly rent can be a complicated
figure, composed of various factors and calculated in downright Byzantine ways. And there are
other expenses, which may not be called rent, but nevertheless feel like rent when you pay them
on a regular basis. On the positive side, if you’re lucky, there may even be some savings -- like free
rent for the first month or two -- that should be taken into account.
There are at least two important reasons to determine the true cost of leasing a given space. First,
you need to make sure that the cost fits your budget. Second, if you’re comparing two or three
different spaces, you need to know the true cost of each space if your comparisons are to mean
anything. Once you understand how a prospective landlord measured the space and what kind of
rent computation you’re being offered, you’ll be ready to roughly compare the rental costs for two
or more places you’re considering.
The following tips cover important steps to take determine the true cost of the rental.
1. Determine how the landlord has measured the square feet. Commercial space is often
advertised and rented on a cost-per-square-foot basis, rather than a descriptive basis (such as “the
first floor”). For example, an ad might describe space as “2,000-Square-Foot Office Suite in New
Building” or “2,000 Square Feet of Prime Retail Space.” However, 2,000 square feet doesn’t
always mean that you’ll pay for and occupy exactly 2,000 square feet.
Strange as it may seem, many landlords -- especially in office buildings -- take their measurements
from the middle or even the outside of exterior walls. It’s a bit like the butcher who charges you for
the bone and fat as well as the edible portion of the steak. Obviously, if a landlord uses this
method of measurement, you’ll wind up paying not only for usable space but also for some or all
of the thickness of the walls.
2. Determine whether and how much you’ll be paying for common areas.
In many buildings, there are parts of the structure or grounds that you’ll share with other tenants.
For example, you and other tenants may share lobbies, hallways, elevator shafts, bathrooms, and
parking lots. When you add these spaces up, they can amount to a hefty chunk of the property.
Don’t assume that the landlord is going to let you use these shared facilities for free.
3. Don’t discount the importance of the layout. The way that a space is laid out -- not just its size --
will have a lot to do with whether you’re getting your money’s worth. For example, awkward angles,
interrupted workspaces, or narrow corridors will be less useful than wide-open areas and
passageways that can accommodate bookshelves, office equipment, dividers, and well-designed
work areas. Your rental cost may be less for a $20-per-square-foot space that’s efficiently laid out
than for an $18-per-square-foot space with an awkward configuration, simply because you’ll need
less of the $20-per-square-foot space.
4. Ask whether you will be required to pay for extras. If this is your first foray into the world of
commercial leasing, you may be surprised to learn that the rent doesn’t necessarily mean what it
does when you rent an apartment or house. In a residential situation, rent is normally one fixed
amount. You’re rarely asked to pay additional rent -- sums to cover operating expenses such as
building insurance, maintenance, or real estate taxes. These costs are, of course, taken into
consideration when the landlord sets the rent for an apartment, but they’re not added on as
separate charges. In a commercial situation, however, you may be asked to pay for some or all of
these additional sums.
Ask if the landlord will want a percentage of your profits. Shopping center landlords often demand
a share of a retail tenant’s profits in addition to the monthly rent. If you have a retail business and
are headed for the mall, you may be asked to pay what’s known as "percentage rent."
---------------------------------------------------------------------
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