Leasing office space is a big financial decision. Whether you’re renting space for your business for the first time or relocating, get answers to these 14 questions before you sign the lease agreement.
Leasing office space is just plain scary. Often you have to sign a multi-year lease, and the monthly rent may be higher than your home mortgage even for a very small office. Worse, the contract may leave you on the hook for rent payments even if you have to move because you outgrow the space or your business closes.
That’s why it’s important to evaluate the location, the building, the terms of the lease, and even the landlord before signing a commercial lease. Here are key factors to investigate.
14 Questions to Answer Before Signing a Lease For Office Space
1. Are you building for the future?
Depending on where you’re looking to rent office space, you may find landlords expect you to sign a 3- to 5-year lease, or possibly even a 10-year lease. If you choose a space based on the number of employees you think you’ll have a year from now, you could easily outgrow the space before the lease is up.
Alex Cohen, a Commercial Specialist at CORE, advises business owners to opt for more space than less because they can probably rent any surplus space later on. But if you do plan to rent surplus space, be sure your lease agreement will allow you to do so.
2. Is the location safe?
Attracting quality talent isn’t an easy task for small businesses. It will be even harder if the building where your rent space is in an unsafe or desolate part of town, in a location with many vacant or run-down buildings, or near a spot that attracts unsavory characters.
3. Is the office space adequately wired for your business and equipment needs?
Space may be less expensive to rent in older buildings, but older buildings don’t always meet the power needs of today’s businesses. For example, the first office Business Know-How rented was in an older building on a main street in town. We discovered that we couldn’t microwave a cup of coffee at the same time as anyone was printing a document. If we did, it tripped a circuit breaker and knocked out power in part of the office.
Even newer buildings can have some limitions. There may not be adequate electrical outlets or LAN connections in the office, or they may not be near where you want to place desks or equipment. If you have to have space rewired to meet your needs, it can cost a significant amount of money even for a relatively small office.
4. How much will furniture cost?
Cohen says that too many tenants consider furniture too late in the process. He advises that furniture delivery is often 4 to 6 weeks. “Even if a space build-out is complete, the absence of installed and wired furniture means a tenant cannot open for business.”
Second, during the buildout of the space, the furniture should drive some of planning, especially for wiring.
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5. How much will the rent increase each year?
Many leases will have annual percentage rent increases built in. These should be spelled out clearly in the lease agreement. To keep your rent from skyrocketing at the end of the first multi-year term, see if you can have the lease written with an option to renew, at the same predefined increase rate.
If you don’t’ have an option to renew, a rent increase could be substantial when you go to renew. That could leave you stuck with either paying the higher rate or paying a substantial sum of money to move to another location.
6. What’s included in the lease?
Your costs for leasing office space are rarely limited to just the monthly rent cost. Find out in advance what expenses are and are not included as part of your agreement.
What utilities will you have to pay for? Will you have to pay for trash pickup, cleaning services, snow plowing in the winter, or any other common area fees? If something isn’t included, ask how much the monthly cost has been in the past. Don’t be taken by surprise after you sign a multiyear lease.
7. Who handles repairs?
When you lease a home or apartment, the landlord normally takes care of all repairs. With commercial space, that may fall completely on you. Make sure it’s spelled out in the lease.
8. How many cars drive by, and are they able to turn into the parking lot easily?
If you’re leasing a retail space, the landlord should give you an accurate count of how many cars drive by each day. It would be nice to know a count of pedestrians and cyclists, too. Is it consistent during the day or during rush hour?
If they don’t have this information but you’re still interested, head to the area and do a count on your own, or ask the city government if they have a count. You want to know the counts before signing the lease. Counting on your own is a tedious job, but this is too big of a decision to simply hope for the best.
While you’re counting, notice how easy or difficult it is for automobiles to turn into the parking lot and how many actually do turn in. If the building or strip mall is on a busy main thoroughfare, traffic may deter potential customers from stopping by.
9. Is there enough parking?
A building or strip mall can have just a few tenants and not have enough parking space for everyone at one time. If the strip mall or building has a relatively small parking lot and has one or more tenants, such as a beauty salon or dental group, that serve multiple customers, or houses a tenant with a lot of employees, you and your customer may not always be able to find places to park.
The best way to tell: Check out the parking lot on different days and different times of the day.
10. Who owns the building?
Establishing who owns the building is key. Is it an LLC, a large corporation, or a sole individual?
If the business owner isn’t local, it may be more difficult to get issues related to the building resolved. Even when the business owner is located nearby, getting their attention is sometimes problematical.
If possible, check with some other tenants in the building to find out how quickly problems get resolved. Another option: Ask the landlord for contact information for former tenants of the space you want to lease. Call them and ask about their experiences.
11. Do you understand the lease?
Business leases are complicated documents. Jack Levey, real estate attorney at Plunkett Cooney in Columbus, Ohio, says, “Even terms that seem familiar may have a very different meaning in the lease than in everyday English.”
The lease you would sign was written to protect the landlord’s interest rather than yours. You should have your interests represented, as well. Have your attorney go over the lease and be sure you understand all the terms. They may be able to suggest terms in the lease you could try to negotiate to be more favorable to you.
12. Are all promises in the lease?
Did you negotiate a certain amount of parking spaces in the lot or use of break rooms that are outside of your leased space? Verbal promises are hard to enforce, so make sure they’re in the lease before signing.
13. Can you assign the lease, sublet the space, or even sell your business?
Strange question, but Levey says that your landlord may have a say in that decision. “Most leases say that you need the landlord’s permission to assign the lease to someone else, or even to sublet the space. Many leases are even stricter, and require you to get the landlord’s consent to sell the equity in your business, or merge with another company.”
14. Can you get an “out” clause written into the lease?
An “out” clause spells out the terms by which you can get out of the lease if you do outgrow the space, or if for some unforseen reason your business can’t continue to operate in the space. For instance, some landlords will agree to a clause that lets you terminate the lease without penalty provided you give them a certain amount of advance notice (usually at least three months).
The Bottom Line
Business leases have a longer length and are more complicated than residential leases. Before signing, get help from a real estate attorney. Your realtor probably doesn’t have the knowledge to represent your interests in the contract negotiation other than the basics like price and length.
RELATED: How to Evaluate a Commercial Lease
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
