Leasing a Location for Your Business

Unbiased financial information provided by Financial Wisdom.

Choosing and leasing a location for your business can be a critical decision. If your business is dependent on walk-in traffic, such as with a retail business, the importance of location is obvious. Service businesses are usually less location-dependent, but location can play a critical role in creating the right business environment and in determining your ability to attract and retain the employees you want. Be sure to consider all the factors when leasing space, not just the level of monthly rent.

Some "non-lease" issues
  • Convenient parking is important, especially if employees drive to work or if clients come to your office for meetings.
  • What types of communication services are available? With the growing importance of the Internet, many businesses of all types are finding that high-speed data access lines are important. Some buildings are pre-wired for high-speed communications with T-1 phone lines and make this service available to tenants. Other types of high-speed data communication lines, such as DSL service and even modem service through cable TV, are not available in all areas. Be sure to speak with the local phone and cable services. Better yet, ask other tenants if they are using these services.
  • You should also consider the level of traffic congestion in the area. As most of us are aware, sitting in traffic can be a huge waste of time.
  • Amenities in the area are another factor to consider. Are there local restaurants or other facilities that can be used for meetings or luncheons?
Real property lease issues

This list addresses some of the most common issues that occur when a lease is being negotiated. Understanding the terms of a lease can make the negotiation process easier for both you and the landlord. Settling on the terms of the lease does not have to be a contentious process. Remember that the landlord is also in the business to make money.

Depending on your level of comfort with the entire leasing process, you may want to have your attorney review the lease before you sign it.

  1. Nature and duration of the lease. Be sure to understand the term of the lease and the mechanics of any renewal options. Also be sure to completely understand when you are entitled to possession and use of the property.
  2. Rent. In the lease contract, make sure it is clear when the rent is due and how it is to be paid, along with the actual amount to be paid. You should also be sure to understand if there is any "pass-through" of increased property taxes or maintenance costs.
  3. Competition. If the space is being used for retail purposes, such as in a mall or strip shopping center, are there any restrictions on the landlord’s ability to lease to your competitors. What are your remedies if a competitor moves in close-by?
  4. Subletting. Do you have the right to sub-lease space if you find you don’t need the space within the duration of the lease?
  5. Physical condition. You may want the landlord to make certain improvements before you move in. This may include changing walls or electrical connections. What will be the general condition of the space when you move in and what condition must you leave it in when you move out?
  6. Landlord’s solvency. Will the landlord be able to deliver on all of his obligations for maintenance and up-keep? The real estate market is usually cyclical and some protections in the lease for your rights may be attractive.
  7. Improvements. You may wish to make improvements to your space during your lease. You may need additional offices or just want new carpet. Be sure your lease allows you to make the improvements and try to get compensated for these improvements at the termination of your lease.

This list is not all-inclusive. You may want to use checklists found in many reference books or on the Internet to make sure all of your issues are covered. Your lease is important. So is the relationship with the landlord. A good working relationship will make the call about the leaking roof easier to make, and a good relationship may get the air conditioner repaired just a little sooner.

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