Entering the business world is complex. It requires a baseline understanding of many different concepts and processes commonly involved in running a business effectively.
One of the most important steps for prospective business owners, particularly those whose business is not based online, is securing a leased location to carry out operations. Not only does attention need to be given to the price of these arrangements, but also the various terms and conditions involved in a commercial leasehold contract.
In this blog post written specifically for those new to the commercial leasing process, I will break down the key ways to prepare for this undertaking as well as the various things to look out for along the way. Please note that this is intended as a jumping-off point, rather than a definitive guide.
Let’s get started!
What Exactly Are Your Needs?
This seems like an obvious question, but hear me out. When most people enter the market for leased property, they have a general idea of what they need that space for.
Additionally, you will also need to be pre-approved for financing. This may require consulting with your financial advisor or accountants, for example. Knowing your financial position is crucial to a successful leasehold property search.
You may see what I’m getting at here: Before searching for property, you must know the precise range of your needs, as well as your inherent limitations. This commences a type of “process of elimination” whereby you and your commercial Realtor can more accurately determine which properties you need to see, and which ones can be safely ignored. With this foresight, you will avoid spending unneeded time at showings trying to find a diamond in the proverbial rough.
Zoning, Zoning, Zoning
Now that you’ve detailed your range of needs, you can move on to the zoning requirements.
Zoning bylaws are enforceable municipal rules, designed in accordance with the Official Community Plan, that designate land with allowable uses and prohibited uses. This is why industrial companies tend to occupy the same part of town, and “main street” (think Vernon!) is mainly storefronts. This is because of zoning designations.
The Basics Of Lease Terms & Conditions
Now that you’re ready to commence your property search, let’s give you the basics of some crucial lease terms:
The term is defined as the exact time-frame that you intend to occupy the commercial space. Generally, this is listed in the contract as a specific amount of years or months. It is important to note that most landlords prefer at least a 3-5 year term, and the demand for less time will usually require other trade-offs from your side of the transaction. If a landlord prefers 3 years or more, and you come in asking for a term of 18 months, they may require a higher monthly lease price or other concessions.
Every property listing you visit will have different obligations that pertain to certain costs, such as those involved in a “triple net” lease. You will notice that some listings will have a given price, coupled with the term “triple net” as being additionally payable. Triple net refers to a landlord or tenants’ obligation to pay property taxes, insurance, and ongoing maintenance costs. Take extra care to know if the approximate triple net costs are included in the agreed-upon lease price, or if it is expected to be paid over and above the base lease cost.
When you decide that a property you’ve viewed could be a great fit, be sure to inquire about approximate utility costs. It is immensely helpful if the landlord has historical utility cost records, in which case you will need to request them. Like previous steps, you will also want to be sure if some or all of these costs are included in the agreed-upon lease price, or if they’re above and beyond them. This step will continue to strengthen your costing forecasts and give you confidence when making offers.
Have you found the perfect space, but it needs a fresh coat of paint and a wall removed? Or, perhaps you need a more extensive renovation? Understand that not all landlords are willing to renovate to your needs, or renovate to your particular standards. If renovations are likely needed, discuss this with the landlord. Just be aware: If a landlord agrees to carry out renovations on your behalf but at their expense, it could lead to a higher lease price. Conversely, you may be able to save on the monthly lease cost by carrying out renovations yourself. It’s a give-and-take process, and it’s highly variable and specific to each property and landlord.
Inclusions & Exclusions
In some of the previous examples, we’ve highlighted the importance of figuring out which costs are included, and which costs are not. Take this step even further into consideration with other important aspects of the property. Are there kitchen supplies and appliances in your new space? If so, are those included for use in the lease terms? What about a piece of machinery you noticed on-site, is the use of that included? Anytime you find yourself wondering “hmm, I wonder if that’s included”, write it down and include it in forthcoming conversations with the landlord. This will save you from hassles and potential disputes over inclusions down the road.
Your business requires so much more than meets the eye. Your customers may know you for the products you sell or the service you give, but your range of view is far more expansive. Understanding your lease terms is an important step in figuring out the costs of your product or service, and thus, the health of your entire business. Using the above steps, you are well on your way to negotiating a favourable lease that will successfully enable you to bring your ideas to the market.