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  • Entrepreneur | 10 Steps to Leasing a Commercial Space

    Entrepreneur | 10 Steps to Leasing a Commercial Space

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    Opinions expressed by Entrepreneur contributors are their own.

    If you are new to commercial leasing and will be leasing a commercial space for the first time, here’s an overview of the commercial leasing process.

    1. Find a location

    Determine the demographic you want to reach and find an area that caters to that demographic. You will then want to research the market by considering the competition in the area and how your business will differentiate itself.

    In analyzing your potential locations, you need to look at costs: I recommend creating a spreadsheet where you put all your costs associated with each place you are considering. You can now make a side-by-side comparison of different sites with a cost spreadsheet.

    Related: How Your Business Can Be Its Own Landlord

    2. Tour with your general commercial contractor

    Once you have visited all locations and analyzed the costs, you will tour the locations with your general commercial contractor. You will want your general contractor to assess the condition of the walls, floors, roof and foundation to ensure they are in good shape. In addition, check the availability and condition of electrical, plumbing and HVAC systems to ensure they are adequate for the intended use. Finally, if you need gas, you will want to ensure that gas is currently at the premises.

    Make sure you have your general contractor evaluate the accessibility of the space. Ask your general contractor whether the property meets American With Disabilities (ADA) requirements.

    After you tour with your general contractor, if you want to submit an offer, ask your general contractor to provide you with a quote. This quote will allow you to evaluate the cost of any necessary repairs or renovations.

    Related: How to Start an Airbnb Business Without Owning Property

    3. Draft and submit a lease offer

    If you are working with a real estate broker, they will be able to assist you in drafting your lease offer. You will want to ask your real estate broker for comps before you let them know the lease rate you want to offer. Remember, when reviewing comps, you need to know the big picture. Landlords often give tenants a cash allowance and free rent to get a higher rent.

    After reviewing comps, determine your budget. Decide how much you will pay for rent, security deposit and other fees. Also, decide on the length of the lease you are comfortable with. At this time, you or your real estate broker are in a better position to prepare a letter of intent, often referred to as a LOI. Your LOI should outline your proposed terms, including the length of the lease, rent amount, security deposit and other relevant details.

    4. Wait for a response

    This part is the hardest for many of my clients since once the ball is out of our court, it can be challenging to know when it will come back in. If you seem too anxious, it will affect your ability to negotiate.

    5. Review and negotiate

    Once you receive the response from the landlord, you will either continue your negotiations or move on to another property. Please note that it is scarce for a landlord to accept an original offer from a tenant. Therefore, if you continue the negotiation process, you will engage in further negotiations until you reach a mutually acceptable agreement. This process can be as quick as a few weeks, but complex deals can last over a year.

    Related: Cultivate Your Negotiation Skills For Entrepreneurial Success

    6. Lease draft

    If you agree with the landlord on the LOI, you will wait for the lease draft to review. I recommend you interview and decide on a commercial real estate attorney skilled in lease review and tenant representation during this time.

    7. Attorney lease review

    Once you receive the lease draft, send the lease along with the agreed-upon LOI for your attorney to review. Additionally, it is essential that you carefully read the lease agreement to ensure you understand the terms and conditions. You, along with your attorney, will want to verify the terms. Make sure that the lease agreement accurately reflects the terms that were negotiated.

    Related: 8 Essential Real Estate Questions To Ask Potential Franchisors

    8. Final inspection

    Before you sign the lease, I recommend you do a final inspection. Typically the general contractor will do an initial review at no cost before this point. To get an in-depth inspection, they will require a fee. Considering the financial costs involved in the lease, it is a good business practice to pay for this final inspection.

    9. Execute the lease

    After you are comfortable with the lease and the final inspection, you will then be executing the lease. It is important to note that typically your time will start ticking when the lease is mutually executed. This time is most importantly specific to the free rent period.

    Related: Why Real Estate Agents Should Take Advantage of BPOs Right Now

    10. Hire an architect, if applicable

    You may need to hire an architect to draw plans if you make significant modifications. If the landlord has existing plans, it will save you money and time. I recommend you ask for these plans during your LOI negotiations.

    If you need to have plans drawn, your architect will submit them to the city once they are complete. Each municipality has different speeds at they operate. You need to understand that you can only start your build-out once the plans are approved.

    The process of leasing commercial real estate can be complicated and time-consuming. Therefore, I recommend you work with a commercial real estate broker, a general commercial contractor and a commercial real estate attorney to assist you in your journey.

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    Roxanne Klein

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  • 5 Major Leasing Deal Points to Know Before Signing a Lease

    5 Major Leasing Deal Points to Know Before Signing a Lease

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    Opinions expressed by Entrepreneur contributors are their own.

    Are you thinking about leasing a space in a retail center? If so, there are many items a tenant needs to be aware of. Here’s a list of five major deal points to be mindful of.

    Related: Running a Business – How to Lease Space

    1. Guarantees

    Many landlords will not lease to a tenant without the tenant personally guaranteeing the lease. Keep in mind that there are techniques a tenant can endeavor to lessen the guarantee. These include offering a limited or rolling guarantee. The limited guarantee will not last for the entire lease term but for the number of years agreed on by the landlord and tenant. The rolling guarantee means that the total exposure the tenant is liable for is the number of months agreed to, regardless of the months remaining in the lease (unless the remaining months are less than the rolling months).

    If you decide to give any personal guarantee, I highly recommend you consult your real estate attorney to understand the guarantee’s implications fully.

    Related: 5 Keys in Negotiating an Office Lease

    2. Use

    When leasing space, it’s essential to be very clear on your use of the premises. Your use in your lease is the only one you have permission to use the premises for. If you decide to expand your business beyond that use, you would need authorization from the landlord for that other use. Also, if you do not have an exclusive in your lease, nothing stops the landlord from leasing to another tenant in your same center, with the same use.

    3. HVAC (heating, ventilation, and air conditioning)

    Not only is it imperative to know specific to the existing HVAC regarding capacity and age, but it is also significant to understand your lease if the HVAC breaks.

    Let’s start first with capacity and age. You need to know if the current HVAC needs to have the capacity you need to operate your business. Capacity is typically not an issue if the space has been leased to another tenant prior and you are opening a retail location where you are selling soft goods. Still, there are other uses where the capacity of HVAC plays a significant role. For example, if you are opening a restaurant, you must know what size HVAC you need to run your business successfully.

    Once you have identified if the existing HVAC will work for your use, you need to know the age. If the unit is older, you need to be aware of the age of the unit during your negotiations. Just so you know, it is the tenant’s responsibility to do their due diligence and find out this type of information as soon as possible when considering a space to lease.

    If you find out the unit is older, I recommend you negotiate with the landlord to have it be the landlord’s responsibility to replace the unit before your business opens. If the landlord is unwilling to replace the HVAC, you should negotiate a warranty lasting for a period that you are comfortable with. You also need to determine who is responsible for fixing the HVAC if it breaks during the lease and who’s responsible for replacing the unit if it is not salvageable. This information regarding who is responsible should be in your lease, and you must know and be comfortable with it before you sign your lease.

    Related: How Small Shops Economize by Sharing Space

    4. Options

    A lease option gives the tenant a choice to renew their lease. A tenant needs to recognize that if they do not have any options to renew their lease, then when their original term expires, the landlord is not obligated to renew their lease. Since options benefit tenants, landlords are not eager to give them. Although it is not required of the landlord, it is retail common industry practice for landlords to provide an option to match the initial term of the lease. For example, if a lease is five years for the initial term, considering the industry practice, the landlord would give one five-year option.

    In addition to knowing if you have options and what the term is, it is also important to discern your rent during your options. The rent for your options will probably be higher than the current term, and you must make sure your business plan can support the rent during your options.

    5. Additional charges

    Additional charges — known as NNN or triple net — are the extra charges that a tenant pays in a NNN lease on top of the base rent.

    There are different types of leases. In addition to NNN leases, other types you will hear about include modified gross leases and full-service gross leases. The majority of shopping center leases are triple net leases.

    There are three items that the NNN is composed of, which include the landlord’s property taxes and insurance and the CAM (common area maintenance). CAM typically includes parking lot maintenance, outside lighting and common landscaping. If each space in the building is not separately metered for water, your water will typically be included in the CAM. As a tenant, you should note that the NNN charges are estimated and could change. If the NNN charges adjust, then your rent will also alter.

    My experience reveals that with all negotiations, there is usually a compromise to be made on most deal points. It is critical that all tenants thoroughly read and understand their lease agreement and have a commercial real estate attorney advise before the tenant signs the lease. I also recommend using a commercial real estate broker specializing in retail to represent you during your offer negotiation process.

    Related: Save Money by Renegotiating Your Lease

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    Roxanne Klein

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