In our last column we explored different ways to finance your new business venture. This column will examine the steps needed to find the best location for your start-up business and discuss how to secure a lease.
Deciding on the Location
The key to picking a good (read: profitable) location is determining the factors that are likely to increase customer volume for your business. One way to do this is to ask yourself the following questions:
- How will customers get to your facility? By foot, car, train?
- If customers drive there, where will they park?
- Will you attract more customers if you are located near similar businesses?
- Will the reputation of the neighborhood (or even the status of a particular building) help draw customers?
Obviously, the nature of your business will affect your answers to these questions. For example, if you’re opening an urban-based facility, you may want to consider whether pedestrian traffic will be highest during the hours you plan to be open. On the other hand, if you opt for a rural location, you may be better off finding a space that provides free, ample parking and is located near highway entrances and exits. If you plan to network with doctors or other health professionals, it would be a good idea to find a location close to existing medical offices. This way, you can maximize your exposure to similar businesses that are already drawing the types of clients you plan to target.
Finding the Right Space
Chances are good that you’ll decide to rent rather than buy a space for your new business. After all, most small start-ups don’t have the funds to purchase real
estate, and it’s usually not a good idea to saddle your fledgling business with high interest payments.
One of the best ways to find available commercial property in the area you select is to engage the services of a local real estate broker. Because brokers typically receive a commission from the building’s landlord when a property is leased, you will not incur the costs for their services. Brokers and agents are great sources of information on rental costs in various neighborhoods. They can usually give you an average figure for the cost of commercial space per square foot per year in any given area. This information will help you figure out how much rent you can afford. But do be aware of
additional costs, such as “common-area maintenance” (CAM) charges, that may add unexpected costs to your monthly rent.
Building Features to Consider
Once you have narrowed down your business location, you need to consider what the building itself has to offer in terms of features and amenities. Despite how smitten you may be with the building, its facilities and physical specifications need to be appropriate for (or adaptable to) your business. For instance, you must make sure the ceiling is high enough to accommodate any tall pieces of equipment. Know in advance whether you can convince the landlord to make physical changes (e.g., plumbing for bathrooms and showers, or electrical upgrades) to meet your needs, as it’s highly unlikely that paying for changes yourself will be worth it in the long run. It’s better to find a space that already meets your requirements.
Communications Wiring. Ask the agent or the landlord for information about communications wiring. You will want to confirm whether the space is connected to a fiber-optic network or is wired for DSL or a T1 line for high-volume Internet connections. Also, find out whether the landlord has sold the rights to the risers, or wire conduits, in the building to a single telecommunications provider, such as MCI or AT&T; if so, you could be stuck with that provider.
Electrical Power. Make sure that the building has sufficient electrical power for your needs, in terms of both the number of electrical outlets in your space and the circuit capacity. If you’ll be running treadmills or other electricity-hungry equipment, you’ll need to know exactly what the existing circuits can handle. Main-taining an appropriate workout temperature is also very important, so be sure to confirm with the landlord how many hours of air conditioning are included in the terms of your lease. Negotiate longer hours if necessary.
Zoning Requirements. Finally, the
location that you choose needs to be legally acceptable for whatever you plan to do there. Contact your city planning or zoning board to determine which activities are permissible in a given location.
Closing the Deal
Once you are certain that you have found what you are looking for, put down a nonrefundable deposit to secure the space, and start planning to negotiate the lease.
If you used a real estate broker to help you locate the space, in theory, that broker should also be able to handle the lease negotiations. However, you do need to be careful at this point: Because the broker may actually have a financial stake in “closing the deal,” he or she may not be fully committed to negotiating the best terms for you. Therefore, it is vital for you to play a hands-on role to ensure that the final lease terms meet your needs. See “Get It in Writing” on page 10 for details.
To avoid last-minute surprises when you move into the space, be sure the lease specifies any improvements the landlord is to make prior to your moving in (see “A Note on Improvements” on page 8). This saves you a lot of headaches, since it makes the landlord responsible for the building, plumbing and electrical permits that may have to be obtained from the city for renovations.
Consult an Attorney
You have far more leeway when negotiating a commercial lease than you would when negotiating a residential lease. It is therefore advisable to have a lawyer assist you with the final negotiations to ensure you get what you need.
Submit the proposed lease to your lawyer, explaining all the renovations or improvements you want included. Your lawyer will then draft up any addenda (changes) to the lease and submit these to the landlord. Keep in mind that while all lease terms are negotiable, you do run the risk of scaring off the landlord if your
demands are considered too picky or
unrealistic. But if your lawyer is the one making the demands, he or she looks like the picky one, not you!
The attorney should also ensure that the contract is between the appropriate parties. Should the lease be in your name or in the name of your corporation? If you plan to open a fairly large facility and hire employees, incorporating your business may be in your best interest; having your corporation lease the building can help protect your personal assets. If you decide on this approach, talk to your
accountant or lawyer prior to signing the lease to ensure that the appropriate
paperwork is completed.
When planning the layout of your space, it is a good idea to enlist the services of an architect or a designer for any planned improvements. Be sure to explain your precise business requirements, such as the exact type of exercise equipment the space “will house, the size of each piece of equipment and the space needed to operate it.
To complete accurate floor and electrical plans, the architect or designer will also need a list of all electrical items (e.g., computers, printers, etc.). Remember to communicate any building improvements the landlord has promised to make, and include the expected completion date and who will be responsible for obtaining permits.
Every commercial lease needs to be in writing and should include the following details:
- The exact amount of rent due, including any proposed increases (called escalations), and the exact date each month that the rent is due. The lease should also specify penalties for late payments.
- The precise length of the lease, including the date it begins and under what conditions you can break or renew it. While a shorter lease means less commitment, it also means you have less predictability when planning for the future.
- Whether the rent includes utilities, such as phone, electricity and water, and who pays for deposits for such services.
- Whether you (the tenant) will be responsible for paying any of the landlord’s maintenance expenses, property taxes and insurance costs, and if so, how such expenses will be calculated.
- Specific details about any required deposit, including terms for forfeit or return of deposit.
- A detailed physical description of the space you’re renting, including exact square footage, available parking spaces and other amenities.
- A specific list of all improvements the landlord will make to the space before you move in, as well as all verbal representations made to you by the landlord or leasing agent (such as the amount of daily foot traffic, average utility costs and any restrictions on the landlord renting adjoining space to your business competitors). Be sure to include any assurances that the space is properly zoned for your type of business; whether you can sublease or assign the lease to someone else (and if so, under what conditions); and how either party can terminate the lease, along with the consequences and costs incurred when doing so.
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