8 Tips for a small business looking to lease new space

1: Only move when you have to:

Moving a company is a very exciting time in a company’s life cycle. It means that you made it, that you are expanding and that business is good. However, you probably know by now that businesses tend to be cyclical. The average lease is for a number of years. If your company has only been around or a year, it may not have hit isn’t firs down market.  My mother always told me to hope for the best but be prepared for the worst. Make sure that you can pay the rent no matter what happens.  

Moving a company is a large shock to the system of any company. You may lose clients, you may lose employees, and you will definitely lose some productivity from updating paperwork and the physical act of moving. 

It is typically best to move as a last resort. Consider opening up a new branch, expanding hours, using teleworking options, or short term flex space if possible before you sign a long term contract.

2: Save up your Money: 

A fat bankroll is the best way to negotiate your new lease. It proves that you are a successful business that can pay the rent in full and on time.  A year of rent in the bank will help assuage the lessor’s concerns.

This is also good for you as a business, as the savings will allow you to weather any hard times that come as a result of the move or a down business client. Every company needs a war chest for rainy days. 

3: move quickly; negotiate after submitting the LOI: A rookie mistake is to conflate submitting an LOI with actually signing a lease. An LOI is completely non-binding. I advocate sending many LOI’s out. That allows the agent to begin negotiations. It also shows the landlord that you are serious. You can use the LOI to ask for additional information or clarify any points. Through the negotiation process, you will find out what the land lords concerns are. It often times is not price. Many tenants assume land lords just want money, and of course land lords want money but they also want tenants that will care about the building, or are steady, or bring a certain type of client to the area.  I spoke to one landlord who was willing to lease a coffee shop space or under market rent because he knew that all his other nearby spaces would count that as an amenity. A negotiator is rarely going to tell you that information at first blush though.

4: Make a list of priorities. Understand where you can compromise: 

When looking for a new place, it is normal for people to start dreaming about all of the great things that they are going to be able to get. Unfortunately, they usually don’t consider the cost or the available supply when they are dreaming. Currently, many people are looking for Large open lofts with high ceilings, however there are a lot of problems with that sort of building. For instance, they tend to be loud, the bathrooms can be far apart, heating and cooling gets expensive because of the amount of air space. For some businesses these are acceptable issues.  However, lofts and warehouse spaces traditionally weren’t built in the suburbs. If your business is located in a quiet residential neighborhood, it is very unlikely that you will be able to find it in the best geographic location for you businesses. 

This means you will need to compromise. A common list of compromises are price, area, floor space, the number of desks, parking, terms, construction type, safety features, TI and a whole lot more. The exercise of prioritizing your compromises will allow your broker to know what is most important to you. It will also let you know what is most important to your business and will speed up the negotiation process.

4 more tips on leasing a space 

5:  Hire a broker they are free: 

The landlord pays for the broker. Why wouldn’t you want a professional in your corner for free? He will have access to industry tools, such as loopnet or co-star. He will know many of the brokers that are listing properties. He will have a very good idea of what is available, how much it is going to cost and where you can find it. Find a good one, and then listen to them. 

You are a great business person. That is why your business is expanding. Focus on what you are good at (your business) and leave the process of brokerage to your broker. In ten minutes, a qualified broker can find out more information than you can in a full day.

Brokers will also know what is traditionally included in a lease and what is not. They will also be able to have a quick conversation and feel out the other broker to see how much you can ask for.

6: Don’t interject into negotiations:

 “If i just talk to them they will understand!” says nearly every buyer ever.  Negotiations are a delicate process where two parties build up trust over a period of time. Between the brokers, this trust could be years or even decades old. Much older than your hunt for space and it might even be older than your business.  Use that built up trust as a strength. If you don’t trust your broker to negotiate well, then you need to find another broker.

Most of the time, the broker is doing a fine job, but clients get impatient. Leasing a space may seem like a do or die for their business but the landlord doesn’t feel that way at all. Often times, they aren’t very financially affected by the space being vacant, so while you are nervous and waiting by the phone, they are playing a round of golf. Most landlords value a good relationship with their tenants, and that includes respecting the landlord’s time. If the tenant decides they are too impatient and calls the landlord while he is golfing, that very well may blow up the transaction.

7: Know your weaknesses: Our natural inclination is to try to hide our weaknesses, but they are going to come up in the negotiation process. Perhaps you haven’t been around for very long, or your bank statements are a little low, or your industry hasn’t been around for very long. Each one of these has an explanation that won’t make it a liability to the landlord.  For instance, if your industry is new, you can put up a larger deposit in case the legal atmosphere changes.

Negotiations are a long process, and if you are upfront with your broker and yourself about what your weaknesses are then you will save time and effort.

8: Have a backup plan:

Sometimes, try as we might, an acceptable property just doesn’t become available. So what then? Some businesses can go virtual for a little bit. Sometimes they stay in the same location and renegotiate terms with their existing landlord. Sometimes they even move out of state. Figure out what your drop dead date is, and what you are going to do about it if that time comes. It can be a scary notion, but by visualizing the worse case scenario, you will be calmer and better prepared in the unlikely event that it does occur.

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