Now that you have narrowed your possible office spaces down to a few that, for the most part, have met your basic requirements (budget, type, location and size), and have gone through the process of evaluating the possibilities now it is time to decide:
Here is a brief overview of the evaluation process once you have narrowed down your possibilities to a few spaces:
Pricing Models. There are several different ways that landlords structure lease rates. The three most common are; Triple Net (NNN) lease, where the tenant pays a lower base rent to the landlord and then all additional expenses separately (see what those are). In a gross lease rate all operating expenses are included in the monthly rental payments. In the middle of the spectrum is a modified gross, see below for a quick look at what is included in the three major pricing models.
The lease. The lease is extremely important document when considering a potential landlord or office space. All issues that arise throughout a tenancy will defer back to what is stated in the lease. The time to negotiate those outcomes is before you sign the lease- not after. Click here for a list of items you should expect to find in a commercial lease and some pointers to navigate that negotiation.
Expansion and Contraction. Since leasing office space spans such a long gap of time (relative to the small business cycle), is legally binding and commits capital over a period of time it is inherently risky. Using a worst (terminating your lease early) and best (needing larger space) case scenarios we put together a list of tips that can assist in reduction of risk associated with leasing office space.
Construction/Remodel. If you are leasing a new space that needs to be built out know what allowances you are being offered to finish the space to your specifications- what is the likelihood that you will go over? If you are leasing existing space, is there any modification needed and how much will you have to pay for and how much will the landlord cover? Lease term length, business credit and market conditions will greatly impact these factors. Obviously the longer the term and the better the credit the more tenant improvements the landlord will be willing to cover.
Personal Guarantees in a Lease: When entering into a commercial lease, the Landlord often requires a personal guarantee from the business owner, even if they have formed a corporation or LLC, and may refuse to rent the space without one. This means that the guarantors will make the lease and other payments if the business fails. Landlords often ask for a personal guarantee from start-ups and other small businesses.
Lease Term. Many small business owners will negotiate heavily for short term leases with the idea that it reduces risk and gives them the ultimate flexibility. If you have reached a point in your business cycle where you feel confident enough in the success of your business as well as have reached a point of relative stability there are some advantages to signing a longer term lease. Here is a list of some of those.
You’ve done your homework; you’ve narrowed your possibilities, negotiated terms and conditions- it’s time to put that pen to paper!