Leasing a commercial space for your business is an inevitable gamble that most entrepreneurs should take. Of course, the ultimate goal is to have your own business space one day to get rid of rent expenses. But until then, you’d want to rent a lovely space where your business can grow.
If this is your first time leasing a commercial space, it helps to know the mistakes tenants make so you can skip the headache and instead focus on the growth of your business. Read on to find out the most common ones!
Mistake #1: Making rent the deciding factor
The market for commercial real estate is tight, and with it being one of the largest expenses in maintaining a business, there’s no surprise that rental fee contributes a lot to the final decision. However, this is also where tenants tend to make the biggest mistake — by focusing too much on the rent, they tend to turn a blind eye to other crucial factors that could contribute to the business’ success in the long run.
We urge you to take a step back and see the bigger picture while considering some of these factors:
- Location
- Availability of amenities
- Infrastructure
- Accessibility
Mistake #2: Not understanding lease types
You might be ready to bust out your beautiful pen to sign that lease, but before you do, ask yourself if you’ve understood it fully. It might be hard to believe, but tenants blindly going into a lease without understanding the type of lease they’re getting into happens more often than you think.
With that said, take your time in learning and understanding the terms and jargons in the lease. Remember, the lease comes from the landlord with their terms, but as a rule of thumb, everything should be negotiable when done right. As a quick guide, here are the 3 most common lease types you need to look out for:
- Gross Lease: This lease tends to favor the tenant the most, as it takes off a plethora of responsibilities away from you. It goes higher in price as it requires more from the landlord (insurance, maintenance fees, operational fees, janitorial fees, etc.). This can help you in the long run because instead of dealing with property concerns, you can turn your focus to your business’ growth.
- Net Lease: This is a complete opposite of a gross lease as it tends to favor the landlord. The rent comes in lower, but you’ll have to handle more maintenance costs and responsibilities, including property tax. And this is all on top of your existing rent. There are 3 types of net leases which vary on costs and responsibilities transferred to the tenant.
- Modified Gross Lease: This serves as the perfect middle ground for both the landlord and the tenant. Though this may be rare, this lease is best for an easier and more flexible relationship with both the tenant and landlord. Here, both parties can discuss who, what, and how much will both parties cough up for the costs of running the space. In other words, it’s negotiable.
Mistake #3: Procrastinating or waiting too long to negotiate
As a tip, never underestimate how long it can take to find a rental space. The whole process takes a while— from locating, negotiating and getting that signature on the lease. The market for commercial spaces is competitive and spaces easily come and go, so don’t waste your time. Plan, prepare, and get a commercial real estate agent involved in this long and tedious process.
Once you find the right space for your business, with the help of your agent, negotiate right away ‘till you reach and agree on desirable terms. Holding off negotiations will hurt your business, as waiting until the last minute will only hinder your leverage. Remember, time is money.
Mistake #4: Not hiring a broker representation
A lot of tenants forgo the idea of hiring a tenant agent, thinking that this might end up costing them more, or even worse, land them in a deal they find undesirable. But unless you’re in the know about commercial real estate, it wouldn’t be very wise to go into this alone.
Hiring a tenant agent will do wonders for your business. They are equipped with the right skills and knowledge to make sure you get the right deal. Besides, did you know that you won’t even have to pay for their services? Landlords set aside a “pro forma” budget for brokers, and you don’t need to shell out for their pay.
Mistake #5: Not planning for the future
More often than not, when tenants negotiate their leases, they make the mistake of focusing on the present state of their business. You should avoid this oversight and instead consider how the future growth of your business might affect your lease. Ready your 3, 5, 10, and 15-year plan with your set goals in mind. Knowing this can help you drive the favor to your side when it’s time to negotiate.
Having your tenant agent up to date with your plans will greatly help you, too, as they can aid in steering the path for a favorable and future-proof lease.
