June 16, 2013

Six Common Mistakes to Avoid When Leasing Commercial Space

(As Published in the June 2013 Deer Valley Times)

Leasing commercial space can be a formidable task for many business owners.  It takes time away from running your business and requires market knowledge not possessed by most.  Therefore, people often procrastinate rather than take action.  All of this results in six common mistakes below that I see among tenants who are leasing commercial space.  However, with proper planning and the right professional help, these mistakes and the stress of leasing can be greatly reduced, allowing you to find the right location for your business, and your bottom line.

  1. Waiting – One of the most common mistakes is not starting the process early enough.  This creates urgency and puts you in a weaker position during lease negotiations.  It also reduces your available options because you will have to focus on spaces that are more move-in ready and disregard potentially better properties that may require more time for tenant improvements.
  2. Not Considering Tenant Improvement Costs – It is important to understand that if you have specific needs and require tenant improvements, those costs may require a higher lease rate or longer lease term.  Tenant improvement costs also add more risk for the landlord so you may be required pay for some or all of these costs up front, or personally guarantee all or a portion of the lease.
  3. Lack of Market Knowledge – Asking rates and terms are always negotiable and can vary greatly based on the landlord and your needs as a tenant for improvements, lease term, etc.  Understanding the market and finding out what landlords are willing to accept are crucial to understanding and feeling comfortable with the terms of your deal.
  4. Taking Negotiating Tactics Personal – Think about what you must have, what you would like to have, and what is not that important.  The negotiation process is a give and take and it is important to understand motivations on both sides of the table.  Do not get obsessed with minor items or too upset if you cannot get everything you ask for.  Ask for more than you need and allow room to negotiate, but try to be reasonable or you will lose credibility with the landlord.
  5. Accepting the Lease Document As Is – It is important that you read and understand the lease agreement, and have a real estate attorney review it.  Request changes as necessary and follow the negotiating tactics above.  The lease agreement is a long term contractual relationship between you and the landlord and if there are disputes during the lease term, the lease document will often rule in resolving those disputes.
  6. Lack of Representation – Having an experienced real estate broker representing you who is an expert in your area and type of property will save you time, money and stress.  And best of all, in almost every case, the broker’s fee is paid by the landlord’s representative sharing the commission.  So you can get that expert representation at no cost to you!

These are a few of the most common mistakes I see as I work with tenants, but there are many more important considerations to make when leasing commercial space.  So plan ahead, do your research, and work with a team of qualified professionals to ensure you find and negotiate the right commercial lease for your business, and your bottom line.


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