Avoid these common commercial leasing errors to reduce risk and protect your business.
If you’ve made one of the top four commercial real estate leasing mistakes below, you and Frank likely have quite a bit in common. Sometimes, doing it “my way” doesn’t always work out for the best.
Here are MacRo’s top four avoid-at-all-cost leasing errors we’ve seen all too often:
Going it Alone or Hiring a “Real Estate” Expert
Doing it all yourself to save some money or hiring a good friend who’s a residential real estate agent that “dabbles” in commercial could cost you ten of thousands of dollars and put your business at risk. It’s noble to think you can navigate the leasing process and negotiate a great agreement with a landlord. And it’s admirable to be loyal to your friend and give them a chance to earn a commission.
But it’s just bad business.
Hire an experienced commercial broker with a great negotiating track record and you’ll thank yourself later and probably save your friendship with your residential agent buddy. Investing in a partnership with a skilled commercial real estate broker will pay dividends across the life of your lease.
Not Reading the Fine Print
This sounds so obvious, but time and again we speak to tenants that sign lease agreements without fully knowing what they’re signing up for. When you represent yourself, or are represented by someone not experienced with commercial leases, you open your business, your employees and yourself up to tremendous risk. You and your commercial representation need to read the fine print and ask the right questions like:
- Who pays for utilities?
- Is there a rent escalation clause?
- Are you signing a gross or net lease?
- Who will pay for property improvements and standard maintenance work?
- Is there a renewal option and what are the termination terms?
The list goes on and on.
Overlooking one or more of these lease terms could impact your business for years. Get your team together, including your broker and lawyer, and read everything. Read it again. And when you are comfortable, and only then, sign.
Finding a new location and an ideal lease for your business takes both short and longer term planning. Winging it just won’t cut it for your business and employees. Every detail must be considered. For example:
- How much space do we need?
- How much parking?
- How many conference rooms and bathrooms?
- What kind of common area do we need?
- Is there ample parking?
- Is everything in place so that when we find the “perfect” place we are in the best position to secure the lease?
- How might the move impact my employees? What can we do to make the transition as painless as possible?
Very few business owners do everything off-the-cuff, but you’d be surprised how many fail to plan ahead with sufficient thoroughness. Moving your business and signing a beneficial lease is worth careful planning, as it could significantly impact your business.
Being Too Shortsighted
If you are signing a three or five year lease, you need to look at the lease agreement and the office space through this lens. The lease and space must fit not only your current business, but it also must be able to expand and accommodate planned future growth. Having a business plan that includes growth projections and future space needs before you start searching for a new business location is critical. If you only look at the here and now, you could wind up paying for a space that does not work and hurts your productivity and bottom line.
You’ll note a common theme when it comes to avoiding these typical leasing mistakes: get expert help and plan ahead.
Paying close attention to detail and being confident enough to delegate tasks that are not your strength will go a long way to ensuring the health of your business for years to come.
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Rocky Mackintosh, President of MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland, has been an active member of the Frederick community for over four decades. He has served as chairman of the board of Frederick Memorial Hospital and as a member of the Frederick County Charter Board from 2010 to 2012. He currently serves as chairman of the board of Frederick Mutual Insurance Company. Established in 1843, it is one of the longest enduring businesses in Frederick County.