If you’re a small-business owner, leasing commercial property is one of the biggest decisions you can make, as it may mean the difference between success and failure. A business lease differs greatly from a residential one, and you’re better off getting a financial or legal expert on board before making such a big decision.
When Jessica Hughes decided to open her first Citizen Pilates studio in Houston, she knew she needed the right address, along with all the other factors that go into making a business a success.
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That was three years ago. She has since opened a second location in the Houston Heights and is aiming to open her third later this year.
Hughes credits her success to getting the right space and the right lease agreement.
She recommends that you make sure to cover the following before leasing commercial property:
1. Location
When Hughes was first looking to launch her studio, she figured out exactly what part of town she wanted to zero in on by taking a saturated market approach — something that many business owners shy away from. A native Houstonian who had lived in the Heights for 10 years, she knew the demographics were perfect for her business. She also knew the area had favorable access to major freeways running in all directions — a factor that can make or break afternoon traffic and the duration of one’s commute.
2. Necessary Permits
Hughes learned the hard way about all-important city permits. The property she was focusing on for her studio had previously operated for 20 years as an under-the-radar hair salon without the appropriate city permits. It ultimately took her six-and-a-half months to open her studio’s doors for business.
“It’s key to exercise patience — no business owner is immune to that,” she says. “Turnover in a large city can be very high and you cannot rush these processes.”
3. Monthly Rent
It’s important to make sure that you can afford the rent, whether or not your business takes off. This includes property taxes, insurance, maintenance, and other charges associated with your monthly building expenses. You’ll also want to check whether your rent will increase over time, and if so, what that increase will be. As with a residential lease, you’ll also need to cover the security deposit amount, the terms for getting it back, and the conditions for early lease termination.
“It’s key to figure out what expenses will fall on you before you sign a lease,” Hughes warns.
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If you sign a lease and then find out that you don’t have the permits you need and there are extensive electrical and plumbing repairs to be made, the landlord can say “Not my problem — those expenses are on you.”
“So many people sign a lease thinking that everything looks great and that they’re ready to start work right away, and then realize that these added expenditures are not only going to take money, but time, as well,” says Hughes.
4. The Length of the Lease
According to Nolo, a short-term commercial lease with a renewal option is usually a more sensible choice for a new business owner. Small-business owners especially don’t want to tie themselves to a five- or 10-year lease. They need the flexibility to stay or move depending on how business is faring.
5. The Convenience Factor
Does the space that you’re entitled to include common areas, hallways, and elevators? This is key because you need to know what areas you’re free to decorate and advertise in.
Other important factors to consider include whether the property has enough bathrooms and whether you have enough parking spaces available directly on the property. “Available parking is a huge consideration that is often overlooked,” Hughes says.
6. Potential Repairs and Renovations
When meeting with a potential landlord, ask whether you’ll be responsible for taking care of any updates or fixes to the space. This includes both labor and expenses. Such responsibilities usually fall on the landlord, but if these issues aren’t clearly spelled out in the lease, you may want to consult with a legal expert.
“As a tenant, you should comb through all of these initially unanswered questions with your landlord and add in any necessary special provisions that you may want included,” Hughes says.
7. Your Best Interests
All business owners need to be demanding and thorough in every deal they get into, and signing the right lease can set you on the path to success. “At the end of the day, you have to respect yourself as a business owner,” Hughes says.
