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Leasing Commercial Property: What You Need to Know

February 17, 2023

Decisions about location and leasing commercial space can be significant factors in determining a business’s long-term profitability. That’s because the cost of leasing space is often one of the biggest numbers on the profit-and-loss statement. Consider the following as you look for a space that fits your bottom line:

  • Give yourself time. At least six months before you plan to move in, begin the selection process. Scout out locations and narrow your choices. Waiting until you’re desperate for space may leave you with fewer options. Starting early may also provide opportunities to observe walk-by or drive-by traffic, the location’s visibility, and the habits of neighboring tenants. It may also provide more time to develop a better understanding of the level of lease payments your business can afford to pay.
  • Compare properties. In addition to identifying a property that’s located near your client base, comparison shopping can give you a better understanding of the value of the property you’re considering, as well as provide negotiating leverage. Develop a matrix of the must-have elements of your location. Then place each location you are considering into the matrix. It will give you a nice comparative visual to help make the right decision.
  • Negotiate terms! Use your location comparison matrix to begin negotiations with the landlord. Ideas include getting free rent while you build out your space, a longer term lease with no or low escalation of rent, and getting the landlord to cover more of the maintenance costs.
  • Read the lease — then read it again. Once you’ve found your space and have the framework for a deal, you will receive your lease. Review the lease. Pay special attention to the length (term) of the lease, renewal options and scheduled rent increases. Scrutinize clauses describing your responsibility for utilities, maintenance and upkeep of common areas and systems. Make sure the lease agreement matches your understanding of the negotiated terms. The agreement must spell out your options for subleasing and delineate default provisions. Termination options, security deposits, allowances for leasehold improvements — all should be specified in the contract.
  • Work with professionals. It makes sense to hire a real estate attorney and other professionals to help find the right space and review the lease terms before signing. An experienced broker may also provide assistance when negotiating lease terms. Careful evaluation and bargaining at the front end may save dollars and avert headaches later on.

If you have questions about how leasing a commercial space will affect your business tax plan, call today.

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