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The spare room that incubated your startup worked for a while, but your business is growing so much it’s time to move into a real office. But take it slowly. Renting commercial space is not as easy as 1-2-3, with all the fine print, industry terminology, hidden costs and details to be negotiated. Plus, leasing mistakes can be costly—even crippling—to your bottom line.
By following this advice from real estate professionals, you can set up shop with confidence.
Hire a broker
Benefit from the knowledge of a commercial real estate professional who knows the market and can help you secure a favorable lease. The best part: It won’t cost you a dime because the landlord and the broker typically share a commission. Brokers can also determine the right amount of space for your business, and they’ll negotiate fair terms for expanding, contracting or terminating the lease, says Mark Reiling, principal at Cassidy Turley, a national commercial real estate services provider.
Consider alternative arrangements
Accomplish your real estate goals by opting for a sublease or executive suite, where several small businesses share a common office with amenities, says Roseanne Hope, a veteran real estate lawyer and president of Compendium Business Strategies, a real estate advisory firm in Minneapolis. You avoid getting locked into a long-term lease, and you typically get a good price for space that might normally be out of your range. Other perks might include shared reception, a kitchen, conference room or office furniture.
Find out all the details ahead of time so there aren’t any surprises, suggests Reiling. Ask who pays for janitorial services, you or the building owner? If you work off-hours, does the heat or air conditioning get turned off at night? How do you arrange for it to stay on during the weekend? Is there fiber optic Internet service in the building? Are there additional fees for using the fitness center or parking lot?
Have your lawyer review the lease
Even though you will pay an attorney to review the contract with a fine-toothed comb, it’s money well-spent. “People think it’s a standard form, but sometimes there are unfavorable provisions in it that you want to avoid,” says Hope. That might mean removing the landlord’s right to relocate your company to another office in the building or taking out a personal guarantee clause that puts you personally on the hook for rent.
When working with small businesses, many landlords ask for proof that you can cover the rent. You might need to show a formal business plan, past income statements, current balance sheet or cash flow projections, notes Linda Zelm, owner of Small Business Real Estate Advisors in St. Paul, Minnesota. Additionally, the landlord probably won’t be the only person in the office to see all of this information, so you might consider asking for a nondisclosure agreement.
Secure your deposit
The majority of landlords will require a security deposit to rent an office. However, you can negotiate to have the deposit applied to your rent after a set amount of time, says Zelm. You also should request that the landlord pays you interest on your security deposit.
Pay attention to hidden costs
On top of rent, many commercial spaces often come with additional operating expenses paid by each tenant. Monthly operating expenses can cover taxes, utilities, insurance, repairs and maintenance, property management and ice and snow removal. You can, and should, negotiate a cap on the expenses, which can keep them from increasing too much each year, Hope says.
Stay within your means
Don’t get overburdened by high rent in a fancy office building if that’s not what you really need, says Reiling. Even if clients are dropping by, consider renting “creative space”—lofts or offices in a warehouse building that have ingrained character. “With a few adaptations and simple decorations, all of a sudden this creative space is pretty interesting,” he adds. “It tells clients a little bit more about you and your business.”
The good news is that many cities across the country still have high commercial vacancy rates, meaning that landlords will come to play—and negotiate—to get you in the door.
Suzy Frisch is a freelance writer based in Apple Valley, Minn. She’s covered business, politics, law and many other topics for a range of publications, including Twin Cities Business magazine, the Star Tribune and the Chicago Tribune.
Note: The opinions expressed in this article are those of the author and do not necessarily reflect the views of FedEx.
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