Mistakes to Avoid When Leasing Commercial Space
Leasing commercial real estate space for your business is a big decision that shouldn’t be taken lightly. Whether you’re renting an office, retail storefront, or industrial space, the terms of your lease agreement can significantly impact your company’s finances and operations for years to come. To protect your business, it’s crucial to understand the ins and outs of commercial leases and avoid common pitfalls. Here are some key mistakes to steer clear of:
- Not Understanding Operating Expenses
Many commercial leases require tenants to pay operating expenses in addition to base rent. Operating expenses can include property taxes, insurance, utilities, maintenance, and other costs associated with the building’s operations. Carefully review what operating expenses you’ll be responsible for paying and get estimates on projected amounts. Overlooking or underestimating these additional expenses could strain your budget down the line.
- Failing to Negotiate Renewal Options
Does your lease give you the option to renew when the term expires? And if so, are the rental rates locked in or subject to increases? Negotiate renewal terms that give your business flexibility and rent increase parameters you can plan for. Otherwise, you risk getting forced out or hit with unaffordable rent hikes.
- Underestimating Future Space Needs
While you don’t want to overpay for more space than you currently need, it’s also important to consider your potential future growth. Many leases have inflexible expansion or contraction clauses. Thoroughly assess your company’s projected space requirements over the full lease term to avoid getting boxed in.
- Overlooking Personal Guarantee Requirements
Landlords often require business owners to personally guarantee the lease obligations. This makes you individually liable if your company ever defaults on rent payments or causes other breaches of the lease agreement. Negotiating to have this clause removed or limited could protect your personal assets.
- Rushing Into a Long-Term Commitment
The length of the lease term is critical. While longer leases can provide rent stability, they also lock you in and limit flexibility if circumstances change. On the flip side, shorter terms give you more agility but less negotiating leverage. Weigh the pros and cons to strike the right balance for your situation.
- Not Having A Real Estate Attorney Review
Commercial leases are complex legal documents filled with provisions that substantially impact your rights and financial obligations. Avoid trying to navigate them solo. Always have an experienced real estate attorney carefully review the full lease before signing anything.
Leasing commercial space requires diligence and attention to detail. By being aware of these potential landmines and consulting qualified real estate and legal experts, you’ll be better positioned to negotiate favorable terms aligned with your business’s best interests.
Don’t go at it alone – the North Star Commercial Real Estate Advisors team has the years of experience guiding companies through the commercial leasing process. Contact us today for a complimentary consultation!
Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or investment advice. It is always recommended to consult with a qualified financial advisor or investment professional before making any investment decisions.