Signing a lease on an apartment may help entrepreneurs feel prepared for the industrial lease process, but the experiences are vastly different. And because a bad lease is like a slow leak – in the sense that it may be minor at first, but over time, it’s going to cause big problems – anyone considering industrial space would be well served by not forging ahead alone. That’s true whether you’re considering your first lease or your second, which actually tends to be the one that makes or breaks a business. A lease is a binding legal contract, so ask yourself whether you truly have the experience and knowledge to be completely clear on everything it entails. Whether or not you decide to find someone to guide you during this process – and we strongly recommend you do – here are three critical considerations before you renew your industrial lease.
Be Precise about Square Footage
Commercial and industrial real estate leases are typically quoted in price per square foot. But because it isn’t uncommon for landlords to recycle lease agreements, actual space isn’t always interpreted accurately. This issue of incorrect measurements, often related to remodels, repairs, or just mistakes, is so prevalent, in fact, that it has its own term. It’s called “rubber rulers,” and the risk you run by not verifying the space you’re about to lease before signing that contract is overpayment.
Be clear on usable areas and common areas, too. Usable areas are the actual spaces used for business purposes, while common areas include things like lobbies, hallways, loading docks, etc. In a lease, the rent reflects the rentable areas plus a percentage of common areas, which is often described as the “multiplying factor.” In most cases, there’s room for negotiation on the multiplying factor, assuming a qualified agent is on hand to go to bat for you..
Understand the Operating Costs
Operating expenses, including variables like taxes, maintenance, utilities, repairs, landscaping, etc., are another area that must be carefully reviewed. Why? Simply because any items that aren’t relevant to either your business or your space should absolutely be negotiated. Again, this kind of negotiation is likely better handled by someone with experience and expertise.
Review the Escalation Clause
The escalation clause is often used by landlords to cover increases in the building’s costs. Fair warning – inexperienced lesses haggling themselves with the landlord open themselves to the potential for their rent to increase significantly over the years, all thanks to the escalation clause. That’s why it’s so important to negotiate a cap.
The best thing you can do for yourself is consider whether you truly have the understanding to effectively negotiate these details – and many others – yourself. If you have any doubts, call Miller Industrial Properties in northern Nevada today, and let us explain how we can help you avoid these costly mistakes.
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