What was once a dream has turned into a successful business and now it’s time to expand beyond the current space. But before you sign a lease on the first space you visit, try to avoid these five common commercial leasing mistakes.
1. Focusing on aesthetics over need.
As an expanding business owner, it is nice to want the premium location with all the bells and whistles, but is it affordable? There is a great risk that comes with business expansion and the last thing you want is to bury the bulk of your expenses into space you don’t need… yet. Find an area that fits your needs within your budget now and look for the luxurious spot after the business has established long-term profitability. There are ways to preserve the right to expand.
2. Agreeing to a long-term lease.
The financial terms usually are better the longer the lease, but so is the risk. What happens if you sign a five-year lease but the business folds within the first three? The business has failed and now you have the burden of paying for an office space you no longer need. The initial investment of a shorter lease is greater, but the flexibility you gain is invaluable.
3. Not considering the Rate of Fluctuation.
As a tenant, you sign the lease with a given set of terms but you may not have noticed the right to reevaluate clause included in the small print. Because of this unaddressed contractual language, the landlord may have the right to raise your rent at any moment for any reason. If there is a sudden financial windfall with other clients and the landlord wants to take advantage of a tenant-wide rent increase, he could. Hiring a real estate attorney will reduce the risk of this happening, but if not, random rent hikes are possible until you renew the lease.
4. Failing to negotiate an opt-out clause.
Things happen in business. There is no greater fear than an obligation to a contract that is no longer beneficial. Whether it’s language that allows for subleasing or determining the payment process in the event of bankruptcy, it is important to be able to opt out of the lease if at all possible. It could result in paying more on the front end but the protection is a must-have.
5. Not hiring a real estate attorney.
Not hiring a real estate lawyer to review the lease may seem cost effective in the beginning. But everything is negotiable and having an expert review the terms of the lease would be beneficial over the term of your lease. Having a long-term relationship with a trusted lawyer is a good business decision.
Even if you were fortunate to avoid these pitfalls, it still is important to have the right law firm representing you. Saunders Walsh & Beard is an experienced firm intended on assisting you and your business in all legal needs. For additional information about commercial real estate or to make arrangements for an initial consultation with one of our top-rated attorneys, call our law office directly at (214) 919-3555.