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Avoiding Common Commercial Leasing Mistakes

How to Avoid Common Commercial Leasing Mistakes

As a business owner, entering your first commercial lease can be both exciting and scary at the same time. Specifically, the process of leasing commercial space coupled with finalizing the lease agreement can be somewhat confusing to the novice business owners who have no experience with the process. The elements of a commercial lease aren’t all the same, so business owners shouldn’t erroneously assume that they will be. While there are state laws out there that deal with leases, very few of those laws apply to commercial tenants. As such, prudent business owners should conduct some research and study to avoid common commercial leasing mistakes.

Start your search at least six months in advance

Do not put off searching for commercial space until the last minute, or you will probably be disappointed. Typically, when searching for commercial space to rent under 10,000 square feet, tenants should start looking at least six months ahead of time. Truthfully, in some unique situations, it may be beneficial to begin searching for up to a year ahead of time. Additionally, the office space will probably need to be remodeled or renovated, so commercial tenants should factor this time into their scheduling and planning accordingly. As a general rule of thumb, the larger the space that your business requires, the longer time you should give yourself to find a space. Overall, you’re only doing yourself a disservice to your business by not allocating enough time to find a commercial space.

Understand your business and office space needs.

As a business owner, you should develop a plan and define your goals with your team. As you consider commercial space/office space, you should ensure that you are staying true to your “brand”. You should ask yourself questions such as, “does this space fit my company image?” “Does this space make the right first impression to my customers and clients?” “Does this space facilitate a happy company environment?” Additionally, together with your operations manager or team, you should think about your preferred layout. Consider whether you’re looking to create a collaborative office space for your team or desire private offices and whether you want modern office decor or traditional office décor etc.

Moreover, while searching for commercial space, you should hire an architect to get a clear understanding of just how much space your business needs. Specifically, an architect can clarify the office layout and design of the space to hone in on your office square footage requirement. Further, an architect can develop a plan that aligns with the company’s growth forecast and evaluate whether the office will still meet your company’s needs in 5 or 10 years. Overall, by enlisting the help of a professional architect, a business owner can avoid having too little space, which is terrible for employees or having too much space, which is costly.

Double Check Your Monthly Operating Expenses

Most commercial leases charge each tenant a base rent amount as well as a percentage of the building’s monthly operating expenses, which typically includes common area maintenance charges (CAM). CAM charges are the building expenses that each tenant benefits from; they include things such as garbage removal, janitorial services, security services, etc. Make sure you know precisely what items make up your additional costs each month before signing your lease. Lastly, do not forget about the Real Estate Taxes. As a business owner, you should make sure you understand what percentage of the building’s real estate taxes that you will be responsible for paying. Specifically, make sure you understand and agree with both the proportional share as well as what effect an increase in taxes will have on your portion of the real estate taxes under the lease agreement.

Hire a Professional Team

In addition to hiring an architect, companies should also consider hiring an engineer and a lawyer. For larger companies, a project manager may also be needed to facilitate the lease agreement. The project manager can serve as a single point of contact for the business. Specifically, the project manager will work with all departments, including human resources, finance, and IT departments, throughout the leasing process.

Conduct Due Diligence

One common mistake with a commercial lease is the business owner’s failure to conduct due diligence on the property. When business owners are excited about leasing new space, they sometimes tend to overlook red flags or cut corners altogether, which can be a costly business mistake. Once you find a space that you are interested in, you must conduct due diligence on the property to ensure that the office meets your business needs. As such, business owners should get basic things inspected, such as the property’s electrical wiring, and plumbing. The building’s mechanical infrastructure, including the HVAC system, should also be evaluated, especially in older buildings. Overall, all appliances and equipment should be inspected, even if the landlord says they are all in good working condition. Lawyers and engineers can work together to confirm that the office space meets all safety codes and is ADA compliant.

Evaluate the Location, Location, Location

Location can be a business asset or liability. Business owners should be very familiar with the location of their new commercial space. Business owners should strive to make the location as convenient as possible for employees who rely on public transportation to commute to work. It is also advisable that business owners consider amenities in the neighborhood. Are there coffee shops around or quality restaurants nearby for lunch on places to entertain clients? Lastly, business owners may want to consider the safety of the neighborhood to ensure that they are not compromising safety for a lower price.

Overall, business owners must have a plan and be disciplined throughout the leasing process. Owners should be obsessive about planning, clarifying objectives, poring over lease details, and hire a team of experts to have a positive commercial leasing experience.

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