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Remember Who's In Your Corner When entering into a commercial lease, you need to know who's on your side and looking out for you best interest. You are leasing some one else's property and they will be drafting and presenting you the lease to sign. The leased will be geared towards the landlord's best interests and to protect his property and investment more so than yours. That doesn't mean the landlord and lease will not be fair, just that it is drafted from his point of view. Understanding this, here are some simple guidelines to protect your interests. Always review your lease fully. Better yet with your real estate agent and/or your attorney. If you do not understand any of the terms and conditions, ask. Have them explained until you do. Know the exact amount of your monthly mad annual rental payments, what is and isn't included in that amount and what is your responsibility over and above the basic rent. I.E. , heating/cooling, electric, janitorial and other common area charges. What are the escalators in rental increases and what are they based on. Agree on these amounts. Finally, know when your lease commences and ends. Do you need to give notice f termination or renewal? Many times there is a 60 to 90 day period where you need to give the landlord notice prior to the expiration date. Otherwise you may end up with a month to month or even another year or two similar to the original term or worse, no lease at all and may have to vacate. Well then, who's in your corner? You, your real estate agent and your attorney so it's best you understand and review the lease with them before signing.
Finding the Existing Commercial Properties Finding the existing commercial properties that fit your needs can be very time consuming. I would find a good commercial real estate agent that works in your area of need. I.E. office, retail, manufacturing etc. They will know that market segment and the people who may be willing to sell or lease their property. It doesn't cost you anything since the seller usually will pay the agents commission. It will save you time and effort which does equate to money. Let them do the leg work for you. Here are a few questions to ask when searching for a commercial agent. 1. How long have you been in the business. Everyone has to start somewhere, but you probably want someone with at least 3 years experience. If not they should team up with someone that has. The Team approach is very common. 2. What market segment do you work with and do you specialize in any one particular area. For example, does the agent work strictly in the office market , retail, manufacturing etc. Again it's not unusual to find an agent that works in more than one particular field or geographical location. But the more you can narrow it down the better. 3. How does he or she get compensated? Does the owner or landlord pay the commission ? Can you get a Tenant Rep or Buyers Agency agreement? Ask them to explain these to you. If you cannot get a satisfactory answer then try someone else. 4. Ask for past transactions and references in the area and type of property you are looking for. Finally, when speaking with the agent do you feel a mutual trust and understanding. If so, start the process with that commercial agent. After all, time is money. Buy or Build Your Commercial Business Property First, we had you identify the property needs of your business. Next you and your accountant determined how much your business can reasonably afford to invest in cash and monthly outlay for real estate. Now it is time to find the property that will satisfy those parameters. The question comes down to buying an existing property or to build one that fits your needs. Working backwards, you have taken the monthly outlay you agreed on and determined how much of a property you can afford. Example. A 20% down payment in today's commercial loan market at aprrox. 7.5%, amortized over 20-25 yrs has a monthly principal and interest payment (P&I) of $7.40 to $8.00 per $1,000 borrowed. If that monthly amount is $3,700 to $4,000 per month plus real estate taxes, insurance etc. you can borrow $500,000. Knowing this you proceed to "the search" for property. Finding the existing properties that fit your needs can be very time consuming. I would find a good commercial real estate agent that works in your area of need. I.E. office, retail, manufacturing etc. They will know that market segment well, and the people who may be willing to sell their property. It doesn't cost you anything since the seller usually will pay the agent a commission. It will save you time and effort which does equate to money. Let them do the leg work for you. Don't forget commercial condominiums. There are more and more coming on the market monthly and all the benefits of owning are there. It may come to the point where the needs of your business cannot be met in an existing property for sale. You then need to see if a location is available that works for you and build one that does. Again a real estate agent and a design build firm can get you cost estimates on what a new building for your specific needs will cost. If that doesn't pan out because of cost or location etc. you may just want to lease short term. Waiting until the reality of purchase becomes available for your needs and wants is better than buying something that does not work for you now and into the future. Do Your Wireless Due Diligence In today's communication world, with cellular phones and wireless internet services replacing the old land lines and fixed wiring, we sometimes take for granted that we will have the same service in our new location as before. Well it may be better or it may be that you cannot get reception from your carrier at all. This can become a costly and time consuming mistake. Do not wait until you occupy your new space. Here's why. Usually the Lease from the Landlord, will state that Communications to your space or suite, are the tenants responsibility. The Landlord may say that there is DSL or T1 lines etc. to the building, but all other wiring and communication set up is up to you. If you depend solely on wireless for telecommunications and internet services, that will be totally your responsibility. Check the service not only from outside the building and the hallways, but also from all points within your space or suite. Most buildings are concrete and steel and these wireless waves diminish significantly the further inside the building you venture. Once you sign the lease and occupy the space, you are held to the terms and conditions. If your wireless doesn't work in the space, you will need to try booster antennas etc. or find a new service that will work or revert back to the old DSL type land lines. Either way, it could be an unexpected cost to your business. Doing your due diligence by checking ahead of time may save you time, money and inconvenience. Easy Ways to Help Lower Your Monthly Lease Payment 1. Ask the landlord if you pre pay some of the lease payments can you have a month's free rent. Often times the landlord needs the cash for property improvements and repairs. By pre paying he may not have to borrow the funds and you both come out ahead. 2. Lower your Square Footage. If possible consolidate work and use space. Use cubicles instead of offices. Use a common conference room if available. If you have archives and storage needs, rent a mini warehouse. You can store old records, retail items, extra desks and fixtures etc. for less in a mini storage per sq. ft. If you are paying $12 per sq. ft. for your space and a mini is $6 per sq. ft., you can see the savings are 50%. 3. Reduce your HVAC needs and usage. If you pay your own utilities, replace light bulbs with fluorescents, install ceiling fans, use set back thermostats. WIndow blinds and shades can also be a big help. Turn down the thermostat in the winter and ask employees to wear sweaters and heavier clothing. Just the opposite in the summer. If retail, ask the landlord if you can install awnings. They also may dress up the building as well.
During the lease negotiations the landlord will no doubt spell out the minimum amount of the coverages you need to carry during the lease. Ask the landlord for a copy of his insurance certificates and take them with you to a commercial insurance agent. Do not skimp on the coverages for your business liability and casualty obligations but no need to go overboard. Your agent will no if the amount called for in your lease is normal and customary for your business risks. Then ask him to review your landlords policies and make sure they are adequate to restore the building in a timely manner, or cover you for some liability of his if some thing should happen.
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