How to Negotiate Commercial Lease for Your Startup
As exciting as your new business venture in Burbank may be, it needs a home. Or, rather an office space to grow and progress towards your set goals. Whether you plan to have a couple of people or a whole team to work in your startup, one of the most important expenses that factors into your cost is leasing a commercial space. Considering you’ll be using a huge chunk of your investment for this, it’s worth looking into.
Business Type
The type of commercial lease you want to get depends on the nature of your startup and the size of the business. For example, a retail or eatery will require more and expensive space as compared to delivering professional service which requires a few cubicles.
The nature of your business also gives you certain freedom, or restrict you from some activities. If you are into the type of business that requires storage space then you’ll also need to declare the type of goods you’ll store to your landlord in case of theft, accidents or fire etc., the clause of which you have to negotiate with.
Term Consideration
But we’re not here to discuss business. We’re here to discuss the terms of your commercial lease, and how to negotiate with your landlord. The first thing you need to realize is that these terms are not carved in stones; they can be changed.
The second thing to do is, study those terms, and see how they match up with your business objectives. Moreover, see what kind of flexibility your lease terms offer you. You don’t want to be stuck with a lease that doesn’t allow you to leave before five years when your business is winding up or moving to another location.
Whatever you do, don’t get caught up with rates. These are deceptive because tenants often get stuck on cheap rates when the rest of the terms don’t actually offer them room for maneuvering their business activities. The following are some of the points to consider.
Length of Lease Clause
As mentioned earlier, getting stuck with a five year lease when you are looking to move to another city is not only highly inconvenient but also costly. While most commercial lease are at least two years, you can bargain for longer if you think you need that much time for your business grow. You’d still need that flexibility in the length of the lease for, say, emergency exit. You can negotiate for subletting the property to somebody else in case you want to leave earlier. Or, you could negotiate for one to two year lease with the option to increase rather than sign up for five to ten year lease straight on.
Exit Clause
The exit clause is one of the most important ones because it dictates when and how you will break the agreement. It also outlines who bears what kind of costs depending on their responsibilities. Terms like how many months of notice period you need to give to the landlord; what associated expenses you need to clear before you leave; and what condition of the property are you supposed to return to the landlord etc. matter. Failing to comply with the exit terms can be costly. Luckily, you can negotiate these.
Renewal Clause
So you love the property, and have an inkling that you’ll be staying on for a couple of more years longer than you’re signing on. Look for the renewal clause, and what kind of flexibility it offers you when you renew. Some landlords stipulate a high rate for increment while others go for low but have stricter terms for renewing. Remember! Don’t get be fooled by the low rates. You want to settle for something in the middle.
Missed Out Clauses
Yes, loopholes do exist, even in commercial lease terms. You might think you’ve got it all by negotiating all of the above but have you checked for “missed out clauses” whose presence might have saved you thousands of dollars? Oh alright, they might not be listed as missed out clauses but you get the drift.
Clauses like whether you’ll be responsible for paying the maintenance of the office or upkeep of the general area; renovations to keep the property in working order; or payment for maintaining technologies etc. You might want to negotiate the extent of the cost you’ll bear.
Expert Help
You’ll not be the only one who’s worried or overwhelmed by commercial lease terms. Don’t worry, there are expert help out there. It’s actually wise if you hire a property consultant who are well versed in dealing with commercial lease. There are two aspects that they’ll help you with. First, they’ll be able to explain to you what these legal terms means, and second, help you to draft counter offer letters. After all, you don’t want to be caught up in drafting terms that will end up in your lease and might be detrimental for your business.
