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Negotiating Your First Office Lease

negotiating office leaseMoving into your first office space is an exciting milestone for your start-up business, but it can also represent a big financial commitment too.

Start-up businesses, in particular, need to be mindful of their ongoing costs – and renting offices is likely to be among one of the highest costs of running their business.  It is therefore very important to get the right premises on the right terms and this means understanding the “art” of negotiating an office lease.

The following are some useful tips for start-up businesses on how to approach negotiating the best terms for your lease:

Be clear about what you want

Before viewing any potential office properties, write down all the features you want from the lease and prioritize them in order of importance.  Key things to consider are the length of term, monthly rent, on-going maintenance costs, rent review, break clause, help with the cost of office upfit, etc.  A clear understanding of your requirements from the outset will help you when it comes to communicating the terms you want to the prospective Landlord.

Don’t Rush

When you find a great premises that suits your small business, it’s tempting to jump in right away ­and sign the first bit of paperwork that’s put in front of you.  The Landlord doesn’t (and shouldn’t!) expect that.  The first draft of the office lease is drafted one-sided in favor of the Landlord, and it is unlikely to incorporate any of the items on your “wish list”.  Take your time and expect several drafts of the office lease to be exchanged before a final agreement can be reached.

Use a Property Agent / Commercial Real Estate Broker

Negotiating an office lease can be an extremely complex and time-consuming process.  Many small businesses negotiate the lease themselves in an attempt to save costs, but cutting corners can actually cost more due to inexperience and poor negotiation tactics.  A property agent  / commercial real estate broker will negotiate the lease terms you really want, and their fees are not expensive when you weight up what you are saving on the terms they are able to negotiate in your favor. Many are paid directly by the landlord when the lease is executed; you likely will not incur out-of-pocket charges for using their services.

Build in Flexibility

A flexible office lease will help to meet the changing demands of your start-up business and provide you with some reassurance that you can at least get out of the lease should your circumstances change.  Flexible lease terms might include a break clause provision which will allow you to exit the lease prior to its expiration, or being allowed to sub-let the property, in part or whole, in the event of a change in financial circumstances.  An inflexible lease demonstrates an inflexible landlord who may not be very sympathetic to the uncertain nature of a start-up business.

Negotiate Several Alternative Properties

Don’t limit yourself to just one property, as this puts you in a poor negotiating position if the landlord knows his property is the only one you’ve set your heart on.  If you make it clear you have other alternatives, you’ll probably find that the previously “fixed” terms suddenly become very flexible.  The other advantage, of course, is that if negotiations to quite go in your favor, you at least have other alternatives to fall back on.

Tenant Repairing Obligations

Landlords will usually pass responsibility for maintaining and repairing the premises on to their tenant.  Tenants need to be clear from the outset who is supposed to be responsible for which particular parts of the property to avoid any disputes further down the line.  When negotiating a lease of an office property, a well advised tenant will look to reduce this liability -  especially where the property is already in a poor state of repair. You may ask that the landlord inspect and /or service any major systems (like HVAC) prior to your occupancy of the property.
Legal Issues

When you and your landlord reach an agreement, the terms will be drafted into a formal lease and you’ll need an attorney to review the lease and go through the terms in detail with you before you sign.  It’s very important that you are 100% satisfied that everything’s been done to protect your company’s commercial interests. Be sure that you are happy with your tenant obligations before committing yourself. Seeking legal counsel  will reassure you that your legal position is fully protected.

Stand Firm

Stand your ground during the negotiation stage; know what you can and can’t afford.  As a small business, the last thing you want is to overstretch yourself, so be prepared to walk away should the Landlord not be willing to compromise.  There are plenty of other properties and willing landlords out there who will be more than obliged to consider your requirements.

 

 

Today’s Guest Post on Start Your Own Small Biz was provided by Clare Moorhouse. Clare works with Help Moving Office,  the online resource that guides companies through the office relocation process.

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