Are you a small business owner looking for office, retail, warehouse or industrial space for lease? Are you selling or buying a business? Do you own a commercial building and could use some assistance with sales, leasing or property management?
Navigating the world of commercial real estate is complex and often very time consuming. Whether you are a tenant or landlord, there area number of tips you should consider when it comes to leasing commercial real estate to make sure you get the most bang for your buck.
BBB in partnership with NAI Commercial Victoria has developed the following tips for tenants and landlords specific to the leasing of a commercial property:
TIPS FOR TENANTS
#1: Do Your Research
Take the time to do up a proper budget and business plan. A well thought out budget and business plan will help you to identify your operating costs, your budget restrictions, your location needs and your plans for growth in the future. This step is especially important for start up businesses.
Understand the true costs of leasing a commercial space. Commercial real estate comes not only with the obvious costs associated with leasing a property (such as the monthly/base rent), but it also includes additional, often unexpected costs.
*Common Costs: When leasing, be aware of additional “Common Costs” (which include property taxes, building insurance, maintenance of shared space and property management fees).
*Percentage Rent: It is common for lease agreements pertaining to retail stores to include a term whereby tenants pay a percentage of their total monthly gross sales to the landlord. In some instances the tenant pays both a minimum base rent, as well as a percentage amount over a certain base amount. In other instances the tenant pays the base rent, plus a percentage of all gross sales.
*Total Costs: Make sure you’ve calculated out the total costs to use the commercial space, as well as the overall operational costs to run your business.
*Renovation Costs: If a renovation is required, be sure you get a solid estimate on renovation costs, and that you understand municipal zoning bylaws. Have a contingency plan if you go over budget – which you will.
Comparison shop. Before getting involved leasing a commercial space it is important that you understand the market value of commercial real estate and compare apples to apples. Different regions within the same municipality can have dramatically different market values.
#2: Assess the location
Location, location, location. A good location is a significant factor to success for many bricksand mortar businesses. Does your business rely on pedestrian foot traffic? Doesit need a large parking lot? Do you need to be in an industrial, residential orbusiness hub? Who are your primary customers? What do they need from yourbusiness location? While the price of the location is definitely a significantfactor to consider, finding the right location can make a big impact on yourbusiness’ success.
Can you get abusiness license? Research whether or not you will be able to get amunicipal business license in order to operate in your desired location.
Visibility andsignage. Be sure to assess whether or not the location adequately covers yourvisibility and signage needs.
#3: Know whom you aredealing with
Make sure you trust your landlord or leasing agent. Small businesses make up the backbone of our economy and poor commercial real estate decisions can dramatically impact the bottom line for small businesses. As a tenant you should feel confident in your landlord or leasing agent and have good, open communications with them. It is important as a prospective tenant that you are open and honest about your business and commercial real estate needs and expectations, to ensure you find the best fit for your company.
#4: Get it in Writing
Offer to Lease. Before signing an official commercial lease agreement, an agreement known as an “Offer to Lease” is drawn up. This agreement should be subject to the tenant reviewing the landlord’s standard commercial lease agreement and generally sets out the key business and legal terms of the more formal lease agreement. The Offer toLease is an important document for tenants because it provides the opportunity to negotiate concessions or additional terms, which may be added or modified before the standard commercial lease agreement is drawn up.
Standard Commercial Lease Document. Be sure every point of negotiation, fee and service discussed is contained in a well-written Commercial Lease Agreement. This document should include the basic terms of the lease (include names, location, costs etc.); how and when the building can be used; operating costs such as who pays for utilities; base rent and a fair estimation of common costs; services provided by the landlord; signage requirements or restrictions; insurance requirements; details about who pays for damages and repairs; required care and use of premises; termination clauses any other pertinent details.
#5: Seek Expert Advice
Seek legal advice. Tenants should review the Commercial Lease Agreement with their own legal representation, before it is signed, to ensure that it clearly defines expectations of both the tenant and the landlord. A solid lease agreement will leave little room for interpretation and take into consideration many different potential scenarios.
Ask the experts. Leasing commercial real estate requires a great deal of knowledge and expertise. Regardless of your personal knowledge base you will likely want to involve one or more professionals in the process such as lawyers, lenders, realtors or consultants to help you with the process. There are a wide varietyof experts available to you with general, specific and comprehensive knowledge about commercial real estate.
TIPS FOR LANDLORDS
Tip #1: Do Your Research
Know your space. It is important that landlords understand the intricacies of their commercial property, and have considered who their ideal tenants are, calculated a fair base rent and accurate common costs, understand potential renovation concerns, and know who their competition is and what they are offering. The more accurate the information a commercial landlord can provide potential tenants, the more likely the landlord will find the right long term leassee for their property.
Tip #2: Assess the location
Understand the benefits and disadvantages of your building’s location. Landlords need to have a realistic understanding of what types of businesses the location of their commercial space is best suited for, and how the location will impact its tenants. In downtown Victoria there are significant differences in the flow of pedestrian and vehicle traffic between city blocks. Businesses that rely on foot traffic may do well in one area of town, and poorly if moved even just acouple of blocks away. Market values also change dramatically between city blocks in the downtown core. Being aware of common bylaw and business licensing restrictions can also be helpful. Accurately understanding your buildings location will help you to better market your space to the appropriate small businesses.
Tip #3: Know whom you are dealing with
Find the right fit. The cost of constantly turning over tenants can be very high. It is importantthat landlords take the time to assess new potential commercial tenants to make sure that they are the right fit for the commercial space. Ask to review business plans and budgets of prospective tenants, to make sure they can actually afford to rent your commercial space.
Tip #4: Get it in Writing
Standard Commercial Lease Agreement. It is important for landlords to have a standard commercial lease agreement available that has been carefully reviewed by legal professionals. This document should take into consideration a wide variety of different existing and potential scenarios. It is also important that landlords and leasing agents have a clear understanding of what points they are willing to negotiate on during the “Offer to Lease” stage, and that the standard lease agreement is designed to accommodate these points.
Tip #5: Seek Expert Advice
Ask the experts. Every situation is unique when it comes to leasing commercial real estate. It will save you significant time and resources, as well as prevent many headaches if you enlist the services of qualified commercial real estate professionals.
NAI Commercial Victoria specializes in full service commercial real estate sales, leasing, property management and development opportunities. They provide all aspects of:
*Purchase and sales of commercial spaces;
*Business and asset sales,
*Financial consultations, and
*New home constructions and sales.
They offer individual, customized services and solutions tobuyers, sellers, landlords, tenants and developers.
For more information contact: NAI Commercial (Victoria) Inc.