Signing a lease for your new commercial or industrial space isn’t like renting an apartment. In fact, for many entrepreneurs, it’s the second lease – and not the first – that could make or break the business. If your business has survived long enough to warrant a bigger, better facility or prime location, then understanding what you’re signing before actually putting pen to paper is essential.
Think of like this – a bad lease can have the same effect as a slow leak. It seems minimal, but eventually, it’s going to spell big trouble. Remember, a lease is a legal contract. Take the time to ensure you’re absolutely clear on what yours includes. This is when the value of an experienced agent becomes crystal clear.
If you’re forging on alone, be clear about the potential risks.
Verify the Square Footage
Commercial and industrial real estate leases are typically quoted in price per square foot. Some landlords recycle lease agreements, which can mean that the actual space isn’t being accurately interpreted. In fact, the concept of incorrect measurements by landlords – because of things like remodels, repairs or just honest mistakes – has its own term. It’s known as “rubber rulers,” and if you aren’t verifying the space you’re about to lease before signing that contract, you’re running the risk of overpaying.
Be clear on usable areas and common areas, too. Usable areas are the actual spaces you’ll use for business purposes, while common areas are spaces like lobbies, hallways, loading docks, etc. When you sign a lease, the rent reflects the rentable areas and a percentage of common areas, too, often expressed as the “multiplying factor.” There’s often room for negotiation on the multiplying factor – another place a qualified agent is useful.
Be Clear on Operating Costs
Operating expenses, which include variables like taxes, maintenance, utilities, repairs, landscaping, etc., are another area to which you should pay close attention. Items that aren’t relevant to your business or your space should be negotiated.
Take a Hard Look at the Escalation Clause
The escalation clause is common. It’s used by landlords to pay for increases in the cost of the building. But if you’re an inexperienced lessee haggling with a landlord, be clear that the potential exists for your rent to increase substantially over the years thanks to the escalation clause. Negotiating a cap here is critical.
If you’re worried that you’ll have difficulty navigating these pitfalls, you’re probably right. It’s worth the phone call to see how an experienced industrial real estate agent can steer you around costly missteps.
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