While negotiating a commercial lease may seem simple enough, it is important to consider how a long term lease and the terms can have an effect on your business. Before beginning any lease negotiations, you should hire a tenant representative. Tenant representation services are free and why not use the services of a professional, commercial broker who has experience negotiating lease terms and understands how lease terms can play out in the long run for a business.
The following are important lease terms to consider that can affect small business operations.
The Out Clause. Let’s face it running a business is difficult and sometimes things don’t work out as anticipated. Sometimes circumstances change and a business owner may need to relocate out of state. Whatever the circumstances may be, it is important to have an out clause in your lease. An out clause can be the option to sublease your space after you move out, or to assign the lease to another party in the case of a business sale. There are also creative options like structuring the lease duration for an initial shorter term and renewal options. This will allow for some degree of flexibility for how long you must remain and/or pay for your commercial space.
The Recapture Term. When signing a lease, where possible negotiate to remove the right to recapture or termination without reason clause. This term can be especially troublesome when a business owner plans to sell their business. In the case of a recapture term, the landlord has the option to take back the space, and in the Denver market where market rental rates are growing at a fast pace it is highly likely a landlord would exercise this option. A termination clause can be similarly destructive, and allows for a landlord, without notice, to take back their space.
Clarify Zoning Early. At the start of your lease journey, it is important to make sure that the space you have your eye on to house your business is actually zoned for your business’s type of operation. This is where it can be especially important to work with a commercial broker – they will have access to zoning information and can confirm your space will work prior to signing any lease contracts.
Advertising Terms. This is a lease term that can easily be overlooked, but can be very important for bringing traffic to your business. Make sure to check your lease for terms that may limit or prohibit signage or usage of sidewalk for business promotion. Walk in or drive by traffic is very important to many business models (think restaurant, retail, automotive), but if a lease term does not allow for proper signage customers may not be able to find you and your business could flounder quickly.
Competitor Business Limitations. If your business resides in a shopping center or similar, you may like to limit the radius within which your landlord can rent space to businesses in the same or similar industries. For example, if you’re a sandwich shop and your landlord rents the space one shop down to a sub shop, this could be very detrimental to your business as you will be competing for the same customers.
When preparing to lease commercial space for your new business venture or even if you’re getting ready to renegotiate your lease, we always suggest discussing your objectives with a commercial broker. A commercial broker will negotiate with your best interests at heart. If you’re interested in working with Transworld Commercial Real Estate for your tenant representation give us a call or visit transworldcre.com.
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Rachael Holstein is the Marketing Manager for Transworld Commercial Real Estate, a full service commercial real estate firm in Denver, Colorado. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle! Visit transworldcre.com for more information.