Any agent will tell you that space is one of the most expensive costs of running a brick and mortar business and that renting a space is a long-term obligation. Because of this, you should not only stay in good relations with your landlord, but also work out a deal that's in your business' best interest. Remember that leases are typically written for the benefit of your landlord, so you've got to be diligent and ensure that your rights as the business owner are protected as well.
If you're looking for your perfect space, here are some tips to consider when rents are on the rise.
This is a must. Not only will where you set up shop affect how accessible you are to your clientele, it's also going to determine the cost. Get the current market rates from a commercial real estate agent or conduct your own research before starting your search.
Before you begin talking with a landlord, you should do the market research on alternative locations if the area you want to open your doors in is too expensive for your business to support. Consider researching past trends to see what might encourage landlords to give you a lower rental rate if you want to negotiate a lower price. Having this knowledge helps you negotiate better.
We've all signed leases on a personal residence before, but most times, a personal lease is very different from a commercial lease. Everything from property taxes to cleaning services may fall on your wallet, so double-checking what is and isn't included in your rent is critical.
Most commercial leases have a "base rent" that is fixed for the total time of the lease and has a yearly cap increase, but operating expenses paid by the tenant, such as repairs and maintenance, can rise dramatically over time. As a result, you'll want to strive to make sure that the conditions of these running expensesare as transparent and predictable as possible when negotiating the lease.
If you're in insurance, you know that value of protecting yourself when a major investment is on the line. For tenants on the lease of a commercial space, what appears to be a little issue can quickly escalate into a major one. Not only are business owners responsible for the damage their employees create, but also for the damage their consumers inflict.
The important thing to understand is that if something happens, such as a flood from your kitchen or bathroom that affects other renters, you will be responsible for all of the damage and will have no say in the repair costs. In this circumstance, the greatest thing you can do is make sure you have adequate insurance that covers these types of situations. This is a phrase that is rarely negotiated by landlords in a lease so agents should have the upper hand here.
In determining the lease length that would be suitable for your business, you will need to consider the health of the business. You will usually find that landlords require a 3-5 year lease. Therefore, the longer commitment you can make, the lower rent you'll pay. ​Simply ensure that you lock in a rate or a maximum price increase per year, and if you must sign a shorter 1-2 year lease, include a favorable first-refusal renewal provision so that if the location works out, you are not forced to relocate.
Furthermore, if your business gets a lot of foot traffic, you may use it to negotiate a lower rent if you agree to stay for a longer period of time, as the health of a property is greatly dependent on the perception of success, which will attract other renters.
Finding the perfect space for your business can be challenging but it's not impossible. Your best strategy is to find a neighborhood that's right for your business and where it can thrive. By being knowledgeable about both the good and the bad aspects of commercial real estate from the business owner's standpoint, you're sure to find the perfect place to set up shop.