Guest Blog Post feature is a new idea we are trying to give all of our members an opportunity to share an article on theBrokerList blog. Since our project is open to the public via online search, writing a blog article about an area of expertise is a great way to brand you and your firm. Thanks to Whitney J. Dutton of South Florida Property Ventures for providing this post.
Entrepreneurs and small business owners are aggressive, enthusiastic, and forced to make split-second decisions. With massive company lay-offs and corporate downsizing we are seeing entrepreneurs and sole proprietors become popular in the leasing game. Although new blood is good, it comes with a lack of experience, seasoned accounts, and an overall lack of experience running a small business.
With the majority of new companies not having the capital to purchase their first business location they enter into some form of a commercial lease negotiation. The instability of our real estate economy and the eagerness of new business owners can translate into a large margin for error in negotiating and signing any commercial lease.
The price isn’t always “right”. Just because a location is giving you an absolute steal on the office does not mean you have to rush to sign the lease for fear of losing the offer price. There are only a few real reasons a landlord would offer a price significantly below market value. If a landlord has a very high vacancy rate he may drop the price just to get cash flowing. High vacancy rates and low cash flow can cause numerous problems:
-Puts the building at a higher chance for foreclosure.
-Low capital for important things such as maintenance costs, aesthetic costs et cetera.
-High Potential for the “not so attractive” neighbor who is being attracted by the pricing.
Make sure to weigh the benefits before signing a lease based solely on price.
The greater the length, the greater the reward. Signing a 3-5 yr lease was a standard practice in previous years due to the stability and current profits of a business. However, with the economies volatile nature today it is impossible to measure where a company will be 12 months down the road. If a landlord is asking you to sign a lengthy lease make sure a few things match up.
-Your base rent is at a price low enough that equates for the length of the lease given, the possibility of depreciation, AND annual rent increases.
-You negotiate AT LEAST one month of free rent along with a healthy build out allowance. A lengthy lease is worth every penny in a trade for free rent or materials.
-A growth addendum is negotiated into the lease. A growth addendum assures that your business can not be hindered due to growth. Your growth addendum should state that if the landlord cannot give you at least double your current square footage you are free to terminate the lease.
(The information presents tips concerning leasing a space for your small business. The information presented here is not intended as a substitute for the advice of an attorney. It is recommended that you consult an attorney prior to signing any lease).