Once you have found an ideal location for your office space and you have settled on a rental rate, there are still a few things you need to consider before actually signing the dotted line. Here are a few things to add to your checklist, as suggested in the article “What Do I Need to Know Before Signing a Commercial Real Estate Lease”:
- Keep negotiating. Lease terms are not set in stone until you actually sign, so continue to try to adjust provisions that are unfavorable to your business. Landlords are often willing to be more flexible than you think.
- Read it closely. Though leases don’t make for the most exciting reading and can be very long, it is so important to fully understand what is in your lease. Check and double check the terms to make sure they got everything right—start date, rent, rent increases, and any other important terms. Make sure you fully understand both your obligations and the landlord’s. Overall, know what you’re getting yourself into!
- Settle your business’s legal structure. If you want the protections being incorporated offers, make sure that you have correctly filed your Articles (or Certificates) of Incorporation or Organization.The mailing process from the Secretary of State can take time, so make sure you sort this out well in advance.
- Understand the terminology. Do not let yourself be surprised by leasing terms like “CAM,” meaning “Common Area Maintenance” or other basic rental terms. Make sure that the percentage of the CAM you are responsible for is based solely on the size of the building, and not how much of it is actually occupied.
- Read the definition of you CAM. This can be a confusing part of the lease, fraught with hidden fees for tenants who do not read carefully. Make sure that you aren’t paying for anything you shouldn’t have to, such as administration fees over 3%, landlord’s legal fees for other tenant negotiations, build-out costs for other spaces, marketing costs for your landlord, etc. Try to also ask for a CAM Stop lease, which means that you are only responsible for increases in CAM and taxes above your base year, which can help you avoid hidden fees. You could instead also ask for a cap on your CAM fees so that they cannot rise above a specific percent.
- Understand your capital expenditures. Capital expenditures in the context of commercial leases encompasses the costs of major structural expenses such as repairs of foundations, roofs, or HVAC systems. The distribution of these costs between landlord and tenant varies from location to location, but try to make sure that the biggest burden of these costs does not get put on you. If you do have to share a certain amount of responsibility for capital expenditures, try to negotiate with your landlord for some sort of cap on the amount you have to spend, or suggest doing regular maintenance a few times a year, but not major repairs.
- Prepare for a guaranty. It is very rare to get away with signing a lease without providing some sort of guarantee. Most landlords will not sign anything without you giving a personal guarantee. But do your best to negotiate and manage the extent of this guaranty. Try to reach an agreement that says you only have to guarantee part of the lease term (i.e.) half, or that a guaranty only lasts a certain amount of months after you terminate your lease, rather than the remainder of the lease period.
- Check to see if the lease is assignable. If you ever need to sell your business for some reason, it will probably be important that you still keep the same location, in which case you would need to assign the lease to the business that is the new owner. Try to make sure that your lease doesn’t allow your landlord to terminate the lease in the event of an assignment. Understand though that the landlord will still want the possibility of rejecting the assignment if the new owner is financially unsuitable.
Ultimately, it is important to check the details of your lease and negotiate for what you can, but also be realistic. Your landlord’s willingness to compromise is probably going to be related to the percentage of the property you will be renting—the smaller the property, the less likely the landlord is to deal with nit-picky negotiations. Consider finding a lawyer to help you review your lease and help you decide what is worth pushing for in negotiations. If your business is interested in office rental space in Overland Park, give a commercial real estate broker in Overland Park a call at 913-685-4100!