1. Negotiate Before Signing. Try to gain every concession possible from the landlord before signing the lease. Once the lease is signed, the tenant and the landlord often have opposite goals.
2. Know who your friends are. Most brokers represent landlords. They get a commission only when the lease is signed. Proceed with caution, or better yet, hire your own broker to represent you.
3. Rent. Is the rent per square foot standard in the area? How often does the rent increase? Rent increases compound annually, so even 3% is a 16% increase at the end of 5 years.
4. Space. Understand the actual amount of space that you’ll be getting. There are a host of square foot measurement techniques that are vastly different, the most common being rentable square feet, usable square feet and gross square feet. Say a business is currently renting 1,700 square feet in an office building and decides it needs more space. It enters into a contract to lease 2,500 square feet (a 75% increase) in a new office building (with a similar percentage increase in the rent). Yet it could end up with only slightly more usable square feet than when it was leasing the 1,700 square feet. The square footage of many offices already include a common area factor which is the pro rata share of the main lobby, elevator shafts, janitor’s closet, and other similar space. A common area factor more than 20% means that a 2,500 square foot office space may only result in less than 2,000 usable square feet.
5. Understand the actual cost. When leasing office spaces, many leases are triple net. This means the tenant will pay for taxes, insurance and maintenance not only on the tenant’s space, but also on the tenant’s pro rata share of the common area. Some, but not all, office leases exclude certain items from being included in those operating expenses, such as capital replacements, structural repairs, etc. Understand the actual cost of the lease.
6. Office Build-Out Issues. Negotiate for temporary rent abatement if building out the space. There should be penalties in the construction contract so that the contractor has to pay the tenant’s rent if he doesn’t finish on time. If the landlord does the build-out, proceed carefully.
7. Not Reviewing any Restrictions or Limitations with regard to the Parking. Not only is it important to review the current parking ratio for the building, but also assess whether there will be enough parking in the future years of the lease term, and what type of parking space users may be in the building. The current parking ratio is determined simply by reviewing the total number of parking spaces not including any handicapped spaces and dividing this by the gross square footage of the building. While the marketing or sale flyers for the building will typically state the parking ratio as X spaces per thousand square feet, it is important to fully review the underlying documents to verify that the parking ratio is correct. To the extent that there are no restrictions on uses in the building, then it is possible that some heavy parking users (i.e. a telephone calling center, a large medical office or a sit-down restaurant) may lease space in the building and there may not be sufficient parking spaces for all owners in the building
8. Subordination Clauses. Always ask the landlord for a waiver of such clauses.
9. Assignment Clauses. A typical landlord wants to control who occupies his or her space and will insert clauses that virtually destroy a business’ ability to sell her/his business. Virtually all standard form leases contain provisions which keep the original tenant on the hook for the rent through the expiration of the term, including all option periods. Tread carefully, and negotiate, negotiate.
10. Failing to Hire the Right Professionals. Avoid mistakes by working with an attorney, accountant and broker who really understand the legal issues that small businesses face when leasing.