When we found a location for our first business, I was so ready to get the keys and get to work on our buildout. I was so adamant that it was the perfect location, that I didn’t even care what was in our commercial lease contract. Nothing was stopping me from putting the petal to the medal on opening our doors. I was a girl on a mission. But if I’m being honest, not taking the time to dive into the nitty-gritty of our commercial lease was not a bright idea. When it came time to open our second and third location, I buckled down and reached out to my network to understand the small print and boy am I glad I did.
Leasing a commercial space is like committing to a long-term relationship. It’s exciting, nerve-wracking, and sometimes a little overwhelming. But just like any good relationship, it’s essential to take your time, evaluate your options, and make sure you’re getting the best deal possible. So, before you get down on one knee and sign on the dotted line, here are 16 crucial things I learned to consider when leasing a commercial space. Trust us, your business will thank you for taking the time to get it right!
- Length of the lease: Commercial leases are typically longer than residential leases, so it’s important to consider your business’s stability and future growth plans when deciding on the length of your lease. The longer the lease, the more negotiating power you have, but don’t over commit yourself.
- Base Rent: Base rent is almost always negotiable. You don’t want to ask for too low, especially if it is a popular space, but do attempt to negotiate here.
- Additional costs: Consider not only the base rent but also additional costs such as utilities, maintenance, and taxes when evaluating the affordability of the lease.
- Rent abatement – Rent abatement is a time period where you can occupy your space and not pay rent. It is VERY common to receive 3-5 months of rent abatement at the front of your lease to offset the face that you are building out the space and not yet generating revenue. Ask for this! (And thank me later)
- Tenant allowances: TA are payments a lessor makes to a lessee to provide the tenant with funds to prepare the rented space for its intended business use. Often a lessor will offer rent abatement OR tenant allowances, but it never hurts to ask for both. If you have an extensive build out, you will most certainly want to ask for this!
- Leasehold improvements required: Some leases require tenants to make leasehold improvements to the space. Consider the cost of these improvements and ensure they fit within your budget. These can often be negotiated, but you can’t negotiate them if you don’t know they are there, so make sure you read your lease in entirety.
- Options for renewal or expansion: Consider whether the lease includes options for renewal or expansion, in case your business needs to expand or renew the lease at the end of the term.
- Permitted use of the space: Ensure that the space is suitable for your business’s permitted use, AND future use. This is a big one. I see owners open a business and decide to grow by adding an additional product line or service only to find out they aren’t permitted to sell the product or service. This is typically due to a non-compete clause of another tenant.
- Non-Compete Clause: Speaking of non-compete clauses, it’s always a good idea to ask for one! This will ensure that your landlord will not lease a space to a potential competitor.
- Parking: Stop by your potential location at varying times to evaluate the parking sitch. If the parking lot is busy and customers don’t have anywhere to park, this could detract customers from coming in. If this is the case, you will want to ask your landlord for a dedicated parking space or two for your business.
- Natural Disasters & Pandemic Clause: If I wrote this 3 years ago, this would not be in here, but BOY did we learn this one through the COVID pandemic. You want to ask for a natural disaster and pandemic clause that safeguards you if an event occurs that is out of your control that effects the performance of your business.
- Maintenance and repairs: Understand the maintenance and repair responsibilities for both you and the landlord, and ensure they fit within your budget and capabilities.
- Insurance requirements: Ensure that you understand the insurance requirements for the space, and that you have appropriate coverage.
- Building and zoning codes: Ensure that the space meets all building and zoning codes, and that any required permits or licenses are in place.
- Landlord’s right of entry: Understand the landlord’s right of entry to the space and ensure that it is reasonable and not disruptive to your business operations.
- Termination clauses: Understand the termination clauses in the lease, including any penalties or fees associated with early termination.
My hope is that these tips can help you feel armed with the knowledge you need to make an informed decision. Remember, leasing a commercial space is a big commitment, but with the right preparation, it can be the start of something amazing for your business. So go forth, dream big, and don’t settle for anything less than the perfect space with the right terms for you. Your business deserves it, and you deserve it too!
In the beginning stages of vetting your business idea? Check out our business plan template here.