much the rent can increase (generally 4%-5%) because if there isn’t a cap on a 10-year deal, for example, an escalation in the CPI could really hurt your operation.
The security deposit — money to cover unpaid rent — is tied to your financials, and the amount can differ based on the age of the company. “For a company that’s been established for 15 or 20 years, you’re talking about three months security and the first month’s rent, but for a new company, it may be more,” Martin says.
If you are moving into a building that’s under construction, you may also want to negotiate a cut-off date in which you have the right to cancel the lease if the space is not ready for occupancy by a certain time.
Once all terms are negotiated, the lease can be drawn. Allow a week for document preparation and at least two weeks for attorney review. Before signing, read the fine print. Make sure all costs to the tenant are listed and landlord obligations including maintenance of the building and other services are spelled out. If you need to get out of your lease before your term expires, use your broker to negotiate your exit. You can either buy your way out or sublease to another tenant.
TO LEASE OR NOT TO LEASE? WEIGHING OTHER OPTIONS
Not every business owner will need to commit to a four- or five-year lease. For some businesses, shared co-op space provides a better alternative.
Shared co-ops are in virtually every major city across the country. In this arrangement, you share office space with several other businesses. There is a central receptionist, several conference rooms, a fax machine and other office amenities. For the business owner who’s in transition between spaces or is looking to solve a temporary space need, shared co- ops are a good choice, but they can be very expensive in the long run. Two offices can run you $5,000-$6,000 a month m some areas.
Purchasing a facility is another option. Most small businesses do not buy real estate, but for some operations, such as non profits that can take advantage of their tax exempt status, it can be a wise investment. The process when buying a facility or participating in a shared co-op is the same as leasing. However, when purchasing a building, you must work with a mortgage broker to help with the financing. Depending on the bank that you use, you may need to put down 20%-25% of the purchase price.
Dealing with commercial real estate, whether you rent, share or buy, is a complex process and one that you should not handle alone. It involves various terms that if not dearly outlined can create disputes between you and your landlord. So when you’re ready to hang out your shingle, find a broker, grab a good pair of walking shoes and look before you lease.
REAL ESTATE TERMS TO KNOW
Lease: a written contract between the lessee and lessor to occupy a space at a specific rental rate for a specified period