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Some companies opt to save money by working in coworking spaces, but having one’s own space is unavoidable for others — especially for those of us providing in-person services.
In the last four years, I’ve negotiated four commercial leases and two renewals in a prime Manhattan location and a lease in the Loop in Chicago. I want to share some things I’ve learned through the years that are often overlooked by brokers and business owners (and even lawyers) that can have a major impact on your leasing experience. Here are some tips for leasing a commercial space of any kind.
Step No. 1: Make Sure You Will Be Operating Your Business Legally
Assuming you already have an existing business entity, learn what kinds of professional licenses, business operating licenses, sales tax licenses or permits you’ll need (if any) to operate your business in your space. Consult with a lawyer if necessary.
Step No. 2: Determine Your Type Of Occupancy
Cities have different occupation codes, and only certain business activities are allowed in certain types of buildings. This prevents, for example, someone operating an industrial-grade drill press in a suite next to an office or opening a secret speakeasy on the third floor of an apartment building. Note that each city has its own code (and it’s very easy to find them online). In NYC, the drill-press-equipped workshop, the office and the secret speakeasy would be D, E and J-2 occupation types, respectively.
Step No. 3: Find Out What Your Insurance Costs Will Be
Depending on what you are planning to do in your space, insurance costs can get high. Find a reputable insurance broker and ask them to get you some quotes from different insurance companies. You will need a general liability policy, including property coverage. Most leases will require this, but even if your lease doesn’t, you should still buy one.
Step No. 4: Set Your Budget For Decor And Equipment
Building out a small accounting office is obviously cheaper than building out an urban spa. You probably have an idea already of what kind of space you need to build out based on your specific business needs. Still, it’s always a good idea to create a spreadsheet with everything you’ll need and the estimated costs associated, as they may be higher than expected.
Step No. 5: Find The Right Space
Find a broker and work with them. Do not sign an exclusive agreement. If things don’t work out, find a different broker. Every time you visit a place, bring a measuring tape with you and take lots of pictures. You might think you’ll remember what all the spaces look like, but it’s not that easy after you’ve seen five or six (or 15) of them.
Once you’ve found a space you like, tell your broker you’ll put together an offer for the landlord and send it to her the next morning. Before you do that, go home and complete step No. 6.
Step No. 6: Research The Building
You can find the building’s information in your city’s Department of Buildings’ database. Make sure the building allows your occupancy type. You can check this in a document called Certificate of Occupancy, in which cities determine the legal occupancies a building can have. Additionally, this database usually contains a history of violations and complaints. Take a look at it and search for red flags (e.g., constant elevator problems or dozens of unresolved, high-risk open violations).
Step No. 7: Negotiate The Basic Terms
Send an offer to your broker outlining the basic terms you want (i.e., monthly rent, buildout/free rent and length of the lease). Here are some important considerations:
• Commercial rent is always negotiable. Offer less than the initial asking price. Rent is sometimes expressed as the total monthly amount, and sometimes as a monthly or yearly rate per square foot. If seeing a total monthly amount is easier for you, use a calculator to do the conversion.
• Many commercial leases are between five and 10 years in length. Ask for a renewal option clause, but don’t break the deal if you can’t get one, as many landlords don’t offer them anymore.
• Tell the landlord you’ll take care of the buildout, if possible, and ask for two or three months of free rent in exchange. (This is a common practice.) Depending on your business needs, coordinating the buildout yourself can be exhausting, but you’ll have more control over it. If you need only some basic partitions, you can simply hire a good contractor and work with him. If you need a more complicated layout, hiring an architect to help you with the floor plan before you hire a contractor may be a good idea. The landlord will need to approve the plan and contractor before you start.
• If the landlord offers to build out the space for you and you’d rather have her do it, make sure there’s a deadline and a compensation clause in the event the deadline is missed.
Step No. 8: Review The Lease
Once you’ve reached an agreement on the basic terms, the landlord will send your broker a lease. Read the entire thing, even if you don’t understand some sections. Pay special attention to the clauses describing the following:
• Elevator service hours and terms
• Access-to-building hours and methods
• Electricity/utilities costs
• Share of real estate taxes
• Insurance requirements and minimum limits
• HVAC/heat hours and terms
• Security deposit
Hire a lawyer and have them review the lease (this could cost approximately $1,000-2,000). Discuss the lease with them, mentioning any concerns you may have, and send your proposed changes to the landlord. Make sure you pick your battles. Some changes may be more important than others.
Final Step: Sign The Lease And Move In
Once the landlord has given you an answer to your suggested changes, decide whether you want to proceed. If you decide to go ahead and close the deal, you’ll be asked to sign the lease in person and bring a certified check for the security deposit and the first month’s rent.
Congratulations and good luck!
January 2, 2019 at 08:29AM
Forbes – Entrepreneurs