Learn Before You Lease: What You Need to Know About Commercial Real Estate

real estate

If you are a business owner there is a good chance that you will need to rent some commercial space in order to allow your business to function and grow, and it definitely pays dividends if you know how to get the best possible deal and the right property for your needs.

When you start to search commercial real estate for lease you will quickly find a diverse range of business premises and an equally differing set of lease options and conditions.

Here is a look at some key points and criteria that will hopefully help you to have a greater understanding of what you need to know about commercial real estate.

A few fundamentals to remember

Choice is always a good thing and one of the best tips to remember is you should continue looking for suitable business premises, even if you think that you may have found what you want.

Continue your search until you have at least two and ideally three, places that you would consider moving your business into. Even if you have a strong preference, having a couple of options up your sleeve will often help negotiations go better, as competition and choice often have a decreasing effect on rental prices and you can negotiate with greater confidence, if you know you have somewhere else to fall back on.

Another fundamental tip to follow would be to resist the temptation to sign any lease or agreement until you have all the required facts and figures including maintenance charges, scheduled rent reviews and other relevant information.

Also try to remain emotionally detached until the lease has been negotiated and your happy with the terms.

You may well be excited about the business premises you have found and everything could be just right such as location and price, but this is not a home you are going to live in but a business premises, so play it cool until everything is signed and sealed as you want it.

Personal guarantees

If your business is fairly new or the landlord simply wants an extra layer of protection to ensure their rent is going to get paid, you might be asked to sign a personal guarantee.

This is quite a common scenario and you should be prepared for being asked to provide a personal guarantee for your business.

Even if you do have to agree to a personal guarantee you might want to try and negotiate a deal that you are more comfortable with rather than simply agreeing to the request with no terms imposed.

If you sign a five-year lease for example, offer to agree to a personal guarantee that expires after the first 2-3 years of the lease, after your business has established a track record of paying the rent on time.

Negotiating your lease

It is highly likely that the first draft lease you receive in relation to the premises you want to take on, is heavily stacked in favor of your landlord.

It is understandable that they will want to cover all angles but far too many tenants just sign the lease without negotiating certain terms within the lease.

Remember that this is a draft lease. Go through it and highlight any clauses you are not happy with so that they are fairer to the landlord and the tenant. Get your lawyer to review the lease before signing it and even if you don’t get all the terms changed that you want, it is far better to negotiate and try to find a compromise rather than just agreeing and signing the first lease you are presented with.

Keeping your options open

The length of the lease tends to influence your negotiating position and strength but as much as you might be able to agree a better deal in return for signing a ten-year lease, it often makes more sense to take a short-term lease with options to renew or extend.

If your business closes or you outgrow your existing premises, it can be a painful process and costly, to try and extricate yourself from a long lease, so try to keep your options open and think about your future needs as well as the present, when you are negotiating he length of the lease and any break-clauses.

Finding the right business premises is always an exciting moment, but always check all the terms and make sure the deal is right for you and your business, before you start making plans.

For over 10 years Eli Russell has worked as the Chief Marketer and Leasing Agent for JGM Properties. In that time he’s placed nearly 500 business tenants in a new office, retail, commercial, industrial, or warehouse space rental. Because they have so many different types of commercial real estate space available for lease throughout the Minnesota Twin Cities Metro Area, it’s afforded him the opportunity to meet thousands of entrepreneurs and business owners in Minnesota.