Many new business owners opt for renting over purchasing, even when growth prospects are strong. Unlike a mortgage, a lease does not require a lot of startup capital. Plus, you are not tied down to a 30-year commitment. This gives you some wiggle room with which to adapt to growing pains without having to sell off or exchange your assets. You simply upgrade to a larger building as you expand.
First and foremost, you must choose a property where you can legally conduct business. Zoning laws regulate what types of activities are allowed in each district. Categories include commercial, residential, industrial, recreational, agricultural and mixed use.
Broker or Solo?
You may choose to scout out a location on your own. Keep in mind, however, that brokers usually specialize in a particular market or size range. It might be worth the extra fee to secure that perfect property that you may have not found on your own.
Enjoying the benefits of renting means avoiding a large capital expenditure upfront. Stay within your budget and upgrade as needed. Commercial renting does come with a certain degree of flexibility, and your landlord may be willing to negotiate according to market conditions.
Is the property easy to access? How close are competitors? What is the commercial scene in the surrounding area? Is it safe? Think about your customers when determining location, especially if you run a retail establishment. Next, think about transportation, accessibility and on-site parking. If you rent out a location in a strip mall, you will probably share a parking lot with several other tenants. Urban areas are often short on space. Keep in mind that customers are less likely to stop in if parking is a hassle.
Consider the atmosphere you want to set in your facility, especially if you will be conducting business on site with vendors, clients or customers. Furthermore, don’t assume that every circuit breaker is the same. If you plan to operate heavy machinery, for instance, you might need to hire an electrician to revamp your system.
A commercial lease is usually more involved than a residential agreement. Business contracts are far from standard, and owners have a lot more room to be specific and restrictive. The one advantage of leeway, however, is that contracts can be tailored to the specific needs of the tenant. Your agreement may include a specific clause about clientele, operating hours or equipment on site. Furthermore, your landlord will probably be willing to negotiate terms, improvements and future rent increases.
With that said, business tenants are generally less protected than the residential crowd. Most favorable rental laws do not extend to commercial contracts. As a result, you may end up paying a large deposit or giving up a considerable degree of operational privacy.
Regardless of the property you choose, be sure your agreement is clear about the following:
- Rent amount, including base and additional
- Payment period and procedures
- Rent increases
- Length of the lease
- Improvements to be done by the landlord
- Tenant improvements
- Specific use
- Over holding
- Party assuming utilities, insurance and taxes
- Care and use
- Rights on reentry
- Security deposit
- Assignment and subletting
- Zoning contingency
- Lease termination
Planning an exiting strategy is not particularly motivating, but it’s an essential element of starting a business. Have a plan in place in case your market suddenly shifts. This may mean signing a shorter lease or an alternate use agreement.
Most lease contacts are wordy, exhaustive and downright intimidating. Legal jargon is very specific, so don’t be afraid to contact a lawyer if you have any questions. Never sign an agreement without fully understanding every clause. Most commercial landlords are very flexible, but it’s important to know exactly what you’re getting into.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.