Leasing Buildings Commercially
April 30, 2019 — Kristen Cherry
If you’re just getting ready to launch your small business, chances are, you’re looking to lower your risk any way you can, which may include leasing space instead of buying. Yes, real estate can be an investment, but the capital required to launch will be considerably less if you start out renting. To protect your business and the money you are putting into it, educate yourself as much as you can on the ins and outs of commercial real estate law. Know some of the key considerations and savvy questions to ask before signing on any dotted lines.
What’s Going on Around Your Business Space
Visibility, foot and road traffic, and the nature of the businesses around you are all going to hugely impact your business’s chance of success. Find out as much as you can about plans for building, time left on leases/future endeavors in the spaces adjacent to yours, changes in road/parking lot construction — it all matters.
A busy suburb (and they’re getting increasingly busy as millennials start families and head out of cities) is going to have crazy rush hour traffic. Is your potential space easy to get into and out of during high-traffic times? If it’s not, are there plans in place to mitigate that problem, and when are they going to be executed? These are things you need to know.
Another consideration: what kinds of businesses are established or are planning to be established near yours? If there’s an anchor store all but guaranteed to bring in traffic, that could be your golden goose. But if the anchor reneges or abandons the space, your golden goose has flown the coop, which could mean bad news for your business. Or let’s say your business is a workout facility, which is right next to a healthy cafe, potentially a huge win-win, but if the healthy cafe becomes a traditional bakery…you see where we’re going. Consider a co-tenancy clause if the success of your small business is relatively dependent upon the longevity of adjacent brick-and-mortars.
Tenant vs. Landlord Responsibilities
Commercial properties differ from residential properties in myriad ways. If you’ve ever rented an apartment, you likely experienced the joy of simply calling your landlord to report a maintenance issue and then having it repaired in a few days, no invoice sitting on the counter for you. Often, with commercial properties, the tenant is responsible for minor repairs. The landlord is required to make the property inhabitable and may also be required to make structural repairs to the building, but smaller repairs may be up to you to handle. Similarly, financial responsibilities may be divvied up between landlord and tenant, i.e. you pay for the utilities, he or she pays the property taxes.
If you share common space — bathrooms, hallways, fitness rooms — with other businesses in the building, tenants may be paying for that in included square footage and may be responsible for maintenance of those areas, or that may be one area where the landlord maintains responsibility for upkeep. These things should be hashed out and put in writing up front to prevent conflict in the future and to assist you in monthly budgeting.
Option to Buy
In that same growing suburb, new businesses are coming in and are ready to buy up space. You may not be ready to do that now, but you want to be given the option if your landlord decided to sell down the road, right? That’s where the Right of First Refusal comes into play. If you have the financial means to buy the space/building, you’d hate to have it sold out from under you, forcing you to relocate.
Launching a business or relocating–either option is overwhelming. But in the flurry of to-do lists, don’t let your leasing space just be “find a cool place we can afford.” Commercial leasing laws vary by state, but in some, you will be required to pay the rent on the remainder of your agreement even if you choose to move out of the property. To protect your interests and stay on the right side of the courtroom, it’s critical to educate yourself, not only to ensure that you select the right space for your new second home, but to help you sign the healthiest lease agreement possible.