Throughout my tenure as a commercial real estate broker I have worked with companies ranging from Fortune 500 to start up. Each company serviced comes with a varying degree of “hand holding”. Small businesses I enjoy working with as I understand executing a lease for a space is a big deal to them. It obligates them not just financially but personally. If their business fails they are left holding the bag. This post is about educating those who take the great American risk; starts a business and grow it to a level where they need to actually lease a space. In my experience the ” extra” costs are not always known and factored into their business plan. Hopefully this provides you some some helpful bullets to add to your financial planning as you venture into the world of leasing commercial space.
You must and I mean MUST have an attorney review your lease. This is a legal and binding contract that cannot be broken just because you can’t afford your rent. When hiring an attorney make sure they have experience with Commercial Real Estate contracts and not just residential or contracts in general. There are clauses that only arise in commercial real estate, you need that expertise.
When negotiating the terms of your lease understand that your security deposit most likely will be between one to two months of total rent. When is the security deposit paid? At the time YOU execute the lease. The Landlord of the property will receive the leases which were executed by you with a check for your security deposit before they will sign. Also to note: budget to also include the first month’s rent, even if your first few months are free. Landlords often want the first paid month’s rent at Lease execution. That is three months of rent you must have on day one!
Most leases are set up with you being responsible for the cost of the utilities. Once the lease is executed and you have possession of the space you will need to transfer all utilities into your name. Sometimes if any of the utilities have been shut off from the last tenant there is an activation fee one must pay.
In retail you will need to and most likely want to have a lighted up sign. These can cost around $5,000 or more. If you do not have the exposure from signage your business will not attract as many customers. Again this is a cost right away. You want the sign up before you open to start the buzz.
Depending on your business and the type of property you are leasing there can be additional costs. Be sure when you are negotiating to ask as many questions about costs and whose responsibility it is to pay those costs. This is one benefit of having a commercial real estate broker on your team; as they will assist you navigating the ins and outs of the leasing process as well as the costs involved.