Seven keys to leasing commercial space

Summer is on its way, and that means getting yourself back in the swing of some outdoor exercising. As with any exercise, there are fundamental principles in leasing commercial space which if followed, make for a positive experience and, if ignored or misunderstood, can lead to unpleasant outcomes.

Based on my past 17 years of assisting companies in leasing more than 1 million square feet of commercial space, here are seven keys to successfully leasing commercial space:

Plan ahead and be prepared. Business owners and managers consistently do not allow adequate time to find the space, negotiate the lease and build out the agreed-to tenant improvements. The entire process can take anywhere from four to 12 months. Assemble your team early and plan ahead. Create a package of nonconfidential information about your company to share with prospective landlords; this will enhance your negotiating position.

Get sound advice. As with a bank loan, a commercial lease is one of the most important agreements a business can enter into. Commercial leases are complex documents, generally written to favor the landlord. In addition to getting the expert commercial real-estate advice, consult with your certified public accountant and your attorney in negotiating the lease.

Understand the life-cycle cost of the alternatives. The initial low-cost choice frequently is not the lowest life-cycle cost among leasing alternatives. Factors such as free rent, tenant-improvement allowances, differential utility costs between buildings, CPI increases and expense pass-through complicate the financial analysis.

Use options to your benefit. Options are a powerful tool frequently overlooked by the tenant in the haste to finalize a lease transaction. Beneficial options can include attractive renewal options, expansion options and even purchase options. When negotiated up front, options often will not cost you, the tenant, anything. They can be of great value down the road.

Evaluate the landlord as if a prospective partner. The harsh but true reality is that the same landlord who is all smiles at the lease signing can turn into the Landlord From Hell three months into a three-year lease. When you were being courted by the landlord, every concern was immediately addressed. But now that you are a tenant, if it takes two weeks to get a return call to report a roof leak or HVAC problem, that can be difficult to live with. Get to know your prospective landlord.

Integrate the unquantifiable factors into your decision. How does a business owner or site manager place a value on the happiness of its employees? The answer is difficult to do, but must be considered in the leasing decision. In the Information Age, the benefit of a happy, aligned team of employees dwarfs the cost of the brick and mortar which house them.

Know who is representing whom. If you found your broker by calling the number off the sign in front of the building you are interested in occupying, chances are excellent you are being sold to, not represented, in the transaction. “For Lease” signs are placed there by the landlord or her or his leasing broker. If you want your interests represented, work through a professional tenant-rep broker.

If you want to avoid the sand traps of commercial leasing, achieve a good score and have fun along the way, follow these seven keys. The process will flow more smoothly and you will end up with happier employees and a better bottom line. Sticking to these principles will lead to positive outcomes in leasing your commercial space.

Contact Jim Ditzel of Niwot-based Summit Commercial Brokers at jjditzel@gmail.com or 303-931-7341.

on Facebook on LinkedIn