After taking the leap of faith and deciding on becoming a business owner, whether it is from your own idea or you have chosen to undertake a franchise of some sort, the next step is procuring the ideal commercial rental space.
For most businesses that do not have the luxury of operating out of a virtual office and need to establish a physical space, the location of the business can be a great determining factor of the success or failure of the entity. As a result the commercial lease agreement that they will enter into will be the final step in securing a successful future for the business, one overlooked detail can cause its demise.
Often times, without the aid of an experienced and trained legal professional and a realtor, contracts may be signed, to the ill fate of the tenant. These contracts are for extended periods that range from 12 months to ten (10) years. It would be more than unfortunate to discover hidden fees, terms and conditions a few months into your tenancy with no way to rectify it or opt out.
There are many factors that a new tenant must consider when looking for a commercial space. The location can be a key factor in dictating the terms of the commercial lease, especially the price. If this agreement is done with insufficient knowledge then tenants may lose their negotiating power.
Some of the key factors that commercial tenants must consider when looking for commercial real estate include:
• Space requirements - what is the rentable space in comparison to the usable space
• Markets and suitability of location for client base- will the area give you sufficient access to your clients, whether pedestrian or vehicular.
• Property – will you need a retail shop, a stand-alone building or a land space to conduct your business operations and does it provide adequate parking and amenities. (Note the varying costs associated with each)
• Proposals – will the landlord be willing to review a proposal or are his rental terms stringent (proposal must be prepared with various things in mind which include a comparative analysis of competitors in the area and what you are able to afford.)
• Negotiations - will the landlord be willing to negotiate the terms of the agreement based on the points you have risen. (At this time an attorney step to review the terms of the proposed lease and uncover all the possible hidden terms, fees and stipulations)
• Another important element of your lease is the ability to Sub-lease. It is important to know if you are able to do so during your tenure and whether you are able to do so without their express consent. This simply means that in the event that the business needs to be expanded (has outgrown the current space) or you may need to relocate you are able to find a tenant to fill the remaining contractual obligations.
• Development – is there room for development in the future, whether infrastructural or otherwise, and who will handle the associated costs.
Commercial leases are legally binding and usually established for long periods. It is important to remember that this agreement cannot be altered (unless specified within the agreement) or be broken. Issues such as starting rent and subsequent rent increases must be clearly outlined within the document landlords are allowed an annual increase of 7.5 % without the permission of the Rent Board however this can be negotiated for an extended period (an increase every 3 years of a fixed amount). Commercial tenants must be aware that In addition wherever persons decide to invest large sums of money, greater care needs to be taken to ensure that this investment is being protected and the prerequisite legal consultations are made.
It is advisable to instruct an attorney to act on your behalf to negotiate the lease itself and to explain fully the effects of entering in to it to you. They are complicated documents that will bind you to their terms and it is important that you fully understand your responsibilities under it before executing it.