It can be scary to lease office space. You may have to sign a multi-year lease. The monthly rent for small offices can be more than your home mortgage. Worse, you may be responsible for rent payments if you need to move due to outgrowing or closing of your business.
Before signing a commercial lease, it is important to assess the location, building, terms, and landlord. These are the key points to consider.
15 Questions to Answer Before Signing a Lease for Office Space
1. Are you planning for the future?
You may be asked by landlords to sign a 3-to 5-year or 10-year lease, depending on the location you are looking to rent office space. You could end up with more employees if you select a space based on the number of people you expect to have in a year.
Alex Cohen, a commercial specialist at Core advises business owners to choose more space over less, as they will likely be able to rent out any excess space later. If you plan to rent excess space, ensure that your lease agreement allows you to do this.
2. Is it safe?
Small businesses are not able to attract quality talent. It’s even more difficult if your rental space is located in an unsafe area of town, near vacant buildings or in an area that attracts undesirable characters.
3. Are you sure your office is wired properly for your business?
Although it may be more affordable to rent space in older buildings than in newer buildings, older buildings are not always equipped with the necessary power for modern businesses. Business Know-How’s first office was rented in an older building located on a main street. It was impossible to microwave coffee while simultaneously printing documents. It would have triggered a circuit breaker and shut down power to a portion of the office.
Even older buildings may have limitations. You may not have enough electrical outlets or LAN connections, or they might not be close to where you need them. Even for a small office, having space rewired can be costly.
4. What is the cost of furniture?
Cohen states that many tenants are too late to consider furniture. Cohen advises furniture delivery can take up to six weeks. He says that even if the space is fully furnished, tenants cannot open their doors unless they have installed and wired furniture.
The second is that furniture should be considered when planning the space. This includes wiring.
5. What will be the annual rent increase?
Many leases include an annual rent increase. These rent increases should be clearly stated in the lease agreement. You can prevent your rent from rising after the first multi-year term. If possible, have the lease written with the option to renew at the same rate.
Rent increases could occur if you do not have the option to renew. This could mean that you are forced to pay a higher rent or pay a significant amount of money to move to another area.
6. What is included in the lease?
Leasing office space is not limited to the monthly rent cost. You should know in advance which expenses will be included and excluded from your agreement.
Which utilities will you be responsible for? What fees will you be responsible for such as trash pickup, snow plowing, and cleaning services? Ask about the cost of the previous month if it isn’t covered. Do not be surprised if you sign a multiyear lease.
7. Who is responsible for repairs?
The landlord usually takes care of any repairs when you lease an apartment or home. Commercial space may require you to take care of repairs. It’s important to make sure that it is clearly stated in the lease.
8. How many cars pass by and can they turn easily into the parking lot?
The landlord should be able to give you an accurate count of the number of cars that pass your retail space each day if you are leasing it. It would also be helpful to have a count for cyclists and pedestrians. Does it change during rush hour or is it constant throughout the day?
If they don’t have the information, but you’re still interested in the area, go to it yourself and count the property. Or ask the city government for a count. Before signing a lease, you need to be able to count the area. It is tedious to count on your own, but it is too important to rely on luck.
Counting the cars in your parking lot will help you see how easy or hard it is for them to get there. Potential customers may not stop by if the strip mall or building is located on a busy main thoroughfare.
9. Is there enough parking?
Sometimes a building or strip mall may only have a few tenants, and not enough parking space to accommodate everyone. You and your customer might not always find parking spaces if the building or strip mall has a small parking lot.
You can find out by looking at the parking lot on different days or at different times of day.
10. Who is the owner of the building?
It may be harder to resolve issues with the building if the owner of the business is not local. Sometimes, even if the owner of the business is close by, it can be difficult to get their attention.
To find out how fast problems can be resolved, it is a good idea to check with other tenants. You can also ask the landlord for the contact information of former tenants in the area you are interested in leasing. Ask about their experience.
11. Are you familiar with the lease?
Complex documents are business leases. Jack Levey, a real estate attorney at Plunkett Cooney, Columbus, Ohio says that even terms that may seem familiar can have a completely different meaning in the lease than they do in everyday English.
The lease you sign is designed to protect the landlord’s interests, not yours. Your interests should be represented. Your attorney should review the lease to ensure you fully understand the terms. You may be able offer to negotiate terms that are more favorable to your situation.
12. Is the lease true to all its promises?
You may have negotiated a set number of parking spaces or the use of break rooms in the lot that is not within your leased space. Verbal promises can be difficult to enforce so ensure they are in the lease before you sign.
13. Are you able to assign the lease, sublet or sell the business?
It may seem strange, but Levey suggests that your landlord might have some say in the decision. Most leases require that the landlord be allowed to assign the lease to another person or to sublet space. Some leases are more restrictive and require that you get permission from the landlord to sell your equity or merge with another business.
14. Is it possible to get an “out” clause in a lease?
A “out” clause outlines the terms under which you can terminate the lease if your business outgrows the space or for any other reason. Some landlords will allow you to terminate your lease without penalty if you give them at least three months notice.
15. Is there a management office in the building or Off-site?
Find out the availability of the building’s management and maintenance workers and when they are available.
The Bottom Line
Business leases are longer and more complex than residential leases. Get help from a realty attorney before you sign. Your realtor may not have the experience to represent your interests in contract negotiations, other than basic details like price and length.