When you are starting a business, you need ample office space. Leasing is one option that most entrepreneurs prefer. Office space rent is one of the vast expenses a company incurs. The key is to negotiate the best lease possible to save enough money to invest in much-needed areas, including hiring new employees, launching marketing campaigns, or investing in equipment.
The fundamental thing to keep in mind is the leverage you have to negotiate for the lease. Properly do your homework and find out if other companies are eyeing the property. Also, find out if the place was vacant for a long time. Such cues can give you enough leverage to bargain with the owner on numerous terms. While doing so, pay keen attention to the below key areas.
Eric Dalius Advises to Become Lease Savvy
One has to remember that no lease is standard and to negotiate for your favorable property, and you should understand these key pointers:
Length of the Lease Term
Landlords offer more concessions to agreements made for more extended periods. Nevertheless, the need for your business may change over time. For instance, you might find the office space as too small or too big, or the rent is above market price. For leases with more extended time, getting out of such situations becomes difficult for the entrepreneur. Also, the demand for space can decrease subsequently, creating a loss for your business. Experts suggest negotiating a short-term lease with renewal alternatives. Instead of opting for a four-year lease, opt for a one-year lease with renewal options.
Tenant Improvements
With time, your space might need alterations, such as a new paint job, reconfiguration of the space, new carpeting, and so on. Most leases condition that the tenant cannot make any improvements without the owner’s consent. Therefore, ask for a clause that you can make improvements with due nods. Moreover, you can negotiate a tenant improvement allowance from the owners. This mutually agreed upon sum provides landlords a nod for any alterations.
Rent Escalations
Long term leases will not work around fixed rents. Mostly, annual increases on the basis of the consumer price index occur. If the landlord pushes you for rent escalations, you can arrange a consumer price index rent increase that tries to cap an amount. Try to negotiate on a predetermined fixed increase.
Repairs and Replacements
Read the clause thoroughly before signing it. If it says that you have to restore the premises to the original condition at the end of the term, you might end up in a big mess. Ensure the landlord understands that you will return the premise in the same condition without excluding damages by fire and casualties, wear and tear, and other alterations approved by the landlord.
Subletting
Startups should negotiate flexibility in the subletting and assignment clause. This allows for reorganizations and ownership changes, including mergers and acquisitions. Some clauses state that the landlord can prohibit a change in more than fifty percent of its stock ownership and needs prior approval. Stay away from such clauses. Eric Dalius states that as a business grows and you invite more investors, it can inadvertently trigger this clause. Moreover, opting for a one-sided lease provision can provide more favor to the landlord than the tenant.
Opt for a Tenant Broker
An experienced tenant broker is invaluable. They can represent the best interests of your company. In light of this, they will educate you on the current market and locate spaces that meet your requirements. They also aid you in tours to view the available areas. The broken will prepare offer letters and negotiate with the owner on your behalf.
You Can Consider the Available Subleases
Often you can find the right deals for office spaces as subleases. Companies that do not need much space as they previously did offer subleases to new firms in need. However, you are subject to the terms with the landlord regarding the master lease. Therefore, it is mandatory to review the lease properly. Apart from that, an entrepreneur needs to limit the responsibility for the surge in operating costs that pass through the landlord to the sublessor.
A few advantages of commercial space subleases are as follows:
- The space is mostly turn-key ready and comprises the built-in alterations.
- They are cheaper to purchase.
- They are easier to get than other means.
- The length of the term is mostly short.
- It constitutes better terms than direct leases that landlords offer.
- Your company will also get possible access to common areas, such as reception lobbies and conference rooms.
Comparison of the Lease Rates
Shopping around for office spaces is tiring, and one can settle for the one not deserving area. Comparison between the different leases and carrying out a feasibility study is crucial to understand the best fit. Make sure you use the same space measurements while comparing the lease rates in different locations to understand the price factor and discounts better.
Look for Reasonable Prices
Office spaces possess enormous rates. This can occur as a challenge for fledgling startups as they have limited resources and capital. Several landlords are coming up with attractive deals in startup hubs in various cities in light of this. They offer favorable business environments and possess proximities to nearest trade centers, medical facilities, and institutions.
Consider Unique Spaces
Your office space need not cover an entire floor. You can forego urban offices and opt for suburban locations that can attract talent. Moreover, setting up offices in tertiary and secondary markets can also fetch more target audiences and lower prices. Opt for open spaces that you can decorate with several do it yourself techniques.
Emerging businesses possess a lot of growth potential. With successful revenue generations, an entrepreneur can aim at geographical and product line expansions. Opting for reasonable office space is crucial to balance your cashflows and lower the operating expenses. Although many entrepreneurs might not realize their industry jargon, the above pointers will provide a fair idea of negotiating with the landlords to get a good deal on commercial office space.
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