Top 10 Things to Watch For Before Signing an Office Space Rental Agreement

Posted by on March 27, 2013 in Business Financing, Business Management [ 0 Comments ]

signing office leaseMoving into office space, whether you are simply switching headquarters for your company, or getting situated in your first commercial location, can be a complicated ordeal for those not familiar with the process, leasing language and legalities.

Even seasoned business owners often times miss important details on their offices’ lease, so paying careful attention to these ten areas can save your business thousands of dollars each year.

Related: Speak with a commercial real estate professional, today

1. Calculation of Rent – There are a number of different ways in which landlords calculate rent for commercial properties. Most often it is quoted in either a flat rate per month, or per square foot annually (divided into twelve monthly payments). Sometimes though, there are situations when landlords will ask for a percentage of your location’s sales, often in retail or restaurant business.

2. Common Area Maintenance – Many office buildings and retail locations charge their tenants common area maintenance (or CAM) fees. This amount would be in addition to your monthly rental payment, and can often times change significantly from year to year.

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3. Rental Rate Increases –By focusing on the present rate they can sneak large annual increases into the lease. Most often commercial landlords will incorporate a modest increase in order to account for inflation in the future, but keep an eye out for any leases in which rent increases more than a few percentage points.

4. Utilities – Depending on the situation, some commercial properties include certain utilities from the landlord. This is most often the situation in smaller or older office space rental properties. Even if the landlord or leasing agent mentioned utilities being included while you were discussing the property, double check that it is included in the terms of the lease.

5. Personal Guarantee – For newer, less capitalized companies, landlords may ask for a personal guarantee from an officer or owner of the company. This protects the landlord in case a tenant defaults on the lease and then claims bankruptcy. Thanks to the personal guarantee, the landlord can now come after the guarantor for the balance owed.

6. Property Taxes – Does the landlord pay the property taxes for the commercial space, or is it divided amongst the tenants? Many office buildings are now leased “triple net” which means that the tenants are responsible for common area maintenance, building insurance and property taxes.

7. Transfer Clause – Some properties will allow you to sublet or transfer your lease in the future if you decide to move your business. However, just because your lease has a transfer clause, it does not mean you can move whenever you’d like – you may need to locate replacement tenants and they would still need the criteria that your landlord has in place for new renters.

8. Limitations of Use – What can and can’t you do with your office space? Are there any limitations to the times you may be open, or restrictions on things which may hinder your business? Many times tenants will find restrictions on signage or the front of their storefront for retail locations. Some commercial office buildings restrict access after a certain time.

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9. Preexisting Condition Clauses – As many commercial tenants do build-outs to create walls and install fixtures and other physical aspects needed for their business, some landlords are inserting preexisting condition clauses into leases. These clauses require tenants to restore the space to its original condition and appearance when they move out – a very costly expense down the road.

10. Repairs – If something malfunctions or has problems in the rental space, is the landlord responsible to fix it? Many times landlords attempt to have tenants pay for these expenses, even though they may be related to the age and previous lack of maintenance in the building.

By carefully examining your rental lease, no matter what the size and cost, you may be able to find a number of issues which are often times negotiable and can mean a huge amount of money going back to your bottom line.

Bio: Mike Gardener is the founder and co-owner of The Office Providers provides any kind of office space for small or even large corporations. Check his site to find office space for rent on any city around the world.

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