Before you even set out to search for a business location, it is important to know what type of property is needed for the business. Once you have shortlisted your property, you will do well to prioritize your needs and set your rules and targets of the negotiations with the property owner, before you meet him or her. This assumes added importance if you are leasing commercial property for the first time.
Tips for commercial leasing
Negotiating a commercial lease can be challenging. But if you adhere to the following tips, you will manage to get the right property at the right terms:
#1 Work out monthly lease cost
You can determine this by multiplying the square meters of the premises by the price per square meter. By dividing this number by 12, you will get the monthly cost. For example, if office space is 1000 square meters and it’s per meter cost is $200, you will need to pay $16,667 per month. To cut down on this cost, try locations where you can get incentives, such as no rent for six months or a discount of 20 percent on the annual cost.
#2 Renovations
Chances are that the premises you lease out may need changes to suit your business. You can talk it out with the property owner as to who pays for such renovations. Insist that the rent should start after all the renovation is complete.
#3 Term of the lease
In Australia, there is no minimum or maximum term for a commercial lease. You can either lease the property for any number of years or agree upon a fixed date. Your chances of renting out the commercial property increase manifold if you go in for a long-term lease since most property owners prefer long-term tenants. However, be cautious as to not negotiate for too long a lease, since your business needs may change over time. The property owner may insist on commercial leasing guarantees in a long-term commercial lease.
#4 Rent escalations
Most property owners will not fix a rent on a long-term lease. Instead, they will impose an annual increase as per the percentage increase in the Consumer Price Index (CPI). In such a situation, you can negotiate not to implement it for at least two to three years. You can also ask for a fixed amount of annual increase and disallow its increase based on ‘fair market’ rates.
#5 Use of premises
Make the use of premises as broad as possible in the contract. This is in the event if you want to diversify your business or decide to sublease a part of your premises.
#6 Shared ownership
In the future, you should have the authority to sublease the premises to allow for mergers, shared ownership and reorganizations.
#7 Operating and common area maintenance costs
Insist upon a fixed-fee or cap on the operating costs, otherwise, the property owner may pass this cost on to you. Also, costs in maintaining shared building areas, such as driveways, foyers, toilets, lifts, grounds, etc., should also be shared in addition to sharing operating costs.
#8 Timely consent for changes
Although you have negotiated to renovate the premises to suit your business, any further improvements or changes will require the property owners’ consent. Put a clause in the contract that the consent by the property owner will not be unreasonably withheld or delayed.
#9 Return in original condition
Property owners would want their premises returned in its original condition, but this is certainly not possible. So, don’t agree to a clause that states that at the termination of the lease, you will return their property in its original condition.
#10 Right of the first offer and first refusal
If any additional space in the premises of your property that is not leased to you becomes available, he or she should offer it first to you, before offering them to third parties. Insist on including the right of first offer in the contract. Similarly, the property owner should also allow you to match any deals he or she is willing to sign with the third parties by giving you the right of first refusal.
Conclusion
Since renting commercial property is a business transaction, it should be well thought out and carefully executed with the help of professionals in the property lease business. This will ensure you get the right premises on the right terms.
