Leasing a commercial property for the first time can be a daunting experience for any new business. Whether you’re well established or at the start up stage, taking the time out from working in your business to search the internet, inspect numerous properties and contact real estate agents can cause undue stress.
When you consider that most commercial property leases are for three to five year lease terms, this is a big commitment for a small business – especially when you add up the costs involved in leasing. Like any important business decision that you make, it is crucial that you arm yourself with knowledge before signing on the dotted line.
Working in the commercial property sector, I’ve met a number of small business owners who have rushed into leases that were on unfair terms, not necessarily due to any fault of their own except not having the knowledge and expertise before taking on a lease.
So before you sign the lease on a new office, warehouse, shop or any other commercial property, here are the five most important things you need to consider:
- Size does matter! When it comes to commercial property, bigger isn’t always better, especially when you’re paying rent on space that you may not use. For offices we use the ‘rule of thumb’ 10 – 15sqm per person with the latter being for enclosed offices. Think about your current needs and what you will need in the future when determining office size.
- Find out about council zoning requirements and what type of business you can operate within different zones. You might find that the council won’t permit a gym within the location that you want due to parking restrictions, or a food manufacturing business within a retail area. It’s also important that you cover off what your business will be doing in the permitted use within your lease but don’t be too specific in the event that you want to expand your service offering.
- The length of a lease is negotiable but it is also governed by legislation. Depending on which state you are in, a Landlord must provide you with a minimum lease term, which can be made up of lease options. For example, in Victoria under the Retail Leases Act 2003 the Landlord must provide you with a minimum lease term of five years. This can be taken any way that you negotiate, e.g. a three year initial term with a two year option.
- Rent and Landlord Incentives are negotiable and will vary depending on the commercial leasing market in that location and for the type of property. Research rental rates of similar properties in the area and what incentives Landlord’s are offering such as rent free period, contribution to fit-out, rental reductions and the like. This will put you in a better position when it comes to negotiating the rent.
- Outgoings associated with the property are payable for commercial property leases by the Tenant. This can include costs such as council rates and Land Tax. This is also governed by legislation, which varies in each state. Ensure that your Landlord complies with the legislation so that you are not paying for outgoings charges that you shouldn’t be and make sure that you only pay for those charges noted in the lease.