Negotiating Commercial Leases & Renewals For Dummies
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If you're thinking of starting your own business, or if you're getting ready to change locations for your current business, you're probably anxious to get out the door and start looking at some properties. But rushing into a new location is one of the worst things you can do. You might get incredibly lucky and end up in the right place with the right lease terms — but you're more likely to land in an unsuitable location or sign a lease whose terms will make you miserable for the next five years.

If you're starting a new business, sit down with a pad of paper or a new document on the computer and begin thinking about the following factors that will impact where you look for commercial space:

  • How much can I realistically afford to pay for space? There's no point in looking at sites that are way over your budget, no matter how perfect they might be. And if you haven't started your business yet, it's difficult to project exactly how much you'll actually earn. It's better to underestimate than overestimate your earnings at this point. For retail businesses, expect to pay 10–15 percent of your projected gross sales on rent and operating expenses.

  • How much space do I actually need? If you're not going to be meeting customers at your location or storing inventory there, you might need little more than a broom closet with a desk and a chair. If you're selling tractors, you need a little more space, both inside and out. If you can afford it, plan to lease a little more space than you think you need now, so you don't have to move the minute your business begins to take off.

  • Where do I want to be? For some businesses, location is everything. If you're opening a retail shop, where you're located can make or break your business. If you're running a boiler room operation, it probably doesn't matter where you're located.

    Your location is more than geographic. In a shopping center or mall, the availability of parking, the ease of getting into the complex, and your location relative to other stores are all very important factors.

  • Should I look at undeveloped properties? Sometimes getting in on the ground floor of a building that hasn't been built yet is a good thing; you may have more leeway in tailoring your space exactly the way you want it rather than having to work within the confines of the existing design. But it's much easier to visualize when you have something concrete to look at. And if the building's already finished, you know exactly what you're getting. And you know the building actually exists — something that might not always happen with undeveloped properties.

If you're moving an existing business to a new location, your list of questions might be slightly different. After all, this isn't your first rodeo. But even veteran renters can make mistakes, so take a few minutes and ask yourself a few questions:

  • Why am I moving? This might seem like a no-brainer, but writing down not only the big reason why you're moving — such as you've outgrown your space, but also all the little reasons why you'd like to move, such as a lack of an executive washroom — can help you focus on exactly what you want in your new place.

  • What benefits do I hope to gain by moving? Although "increasing my bottom line" is always a good answer here, there are undoubtedly others. Are you looking to shorten the commute for your workers? Draw in a higher-class clientele? Locate near businesses that will complement yours and pull in customers that will seek out your type of business?

  • What's my least favorite thing about my current location? If the answer is the landlord, then obviously you don't want to look at any other properties they own. If you love your location, but getting into your complex requires a left-hand turn off a busy street, which drives both you and your customers crazy, then look at properties on the other side of the road.

  • What's the best thing about my current location? If there are things you really like about your location, it pays to try and duplicate them in your new spot. Do you really like being on the ground floor because you're afraid of heights? Or do you love looking down at the city from the 25th floor? Is a building with restaurants nearby important, or can you and your employees brown bag it?

  • What kind of space configuration and basic square footage do I need? One advantage to already being in business is that you know what works and doesn't work with your current setup. Maybe you overestimated or underestimated your needs in your present building. You found out you really need a few more restrooms and a bigger kitchen area for employees. You know whether you can work in an oddly shaped space or if you really need a large open rectangle. Although space can be refitted to some degree to suit your needs, the basic shape and usable square footage is hard to change.

  • When do I need to move by? Coordinating the move of an existing business between two buildings is more complicated than moving into a building for the first time. Consider the impact of downtime while you move your business and the terms of your existing lease to help you figure out how much flexibility you have in your move date. If you love a certain property, but it won't have available space for six months, can you work with your current landlord to stay where you are until you can move into the new property?

About This Article

This article is from the book:

About the book authors:

Dale Willerton and Jeff Grandfield are The Lease Coach, America's #1 authority on lease negotiating for commercial, retail, and office tenants. In 1993 former shopping center manager Willerton switched sides to work exclusively for tenants. Both authors frequently speak at industry trade shows, franchise events, healthcare conferences, universities, and business networking events throughout North America.

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