Usually the landlord presents you with a lease and you sign it. Don’t do that! Everything in that lease is up for negotiation. By just accepting whatever the landlords gives you, you are missing out on an opportunity to save money and cover yourself down the road. What should you negotiate on? Most things. Here are the key things to negotiate on:
- Lease start date: No one can sign a lease and open for business within a day or two. It will take at least a couple weeks – but for most people it can take months. For us, it took us almost four months to renovate our space for The Woof Room and Deckci. As a new business, we did not want to pay rent when we weren’t open so we were able to negotiate that we could get in to the space beginning in August to renovate, but our lease wouldn’t officially start until mid-October. We opened for business at the end of November. This saved us over $10k in rent. Try to push back the lease start date as far as possible to lower your upfront costs. Ideally your lease would start when you actually open for business (or later).
- Lease term: Many landlords for commercial or industrial spaces want long-term leases. At least 5-10 years (one building we looked at wanted us to sign a 30 year lease!). As a new business, you don’t want to sign a lease that long if possible because you never know what might happen with your business. We were able to negotiate our lease to be a 3 year lease. Also, this is also where you should negotiate any conditions on your lease. For example, you should make your lease conditional on city (or other governmental) approval. For The Woof Room, we made our lease contingent on getting approval from Roseville to open.
- Rent (and rent increases and what rent includes): Negotiating your rent to be lower is worth a shot – but don’t be surprised if rent is a sticking point. Try to get taxes and cam included in your rent. Make sure to have a note in the lease about the landlord needing to provide proof of taxes/cam going up before they can increase your rent because of it. Also, make sure to spell out rent increases (if any) in your lease. For example, our rent increases by 2% annually. Lastly, try to get some or all of your utilities included in your rent. We were able to get water included in our rent. Because we wash a ridiculous amount of linens for Deckci, this was a huge win for us.
- Renovation: Oftentimes landlords will cover some of the costs associated with building out or renovating your space. This is something you should negotiate for. Some will just flat out pay for contractors to do some work, others will give you a rent credit for $x amount. We negotiated that the landlord would remove all of the glued down carpet throughout the space, construct about 100 feet of interior walls (carpentry, drywall, tape, mud), demo a concrete landing, and add a drain and plumding to the room we planned to do laundry in. These things saved us at least $4,000-$5,000. Make sure you write a deadline for this work to be done by in the lease. Make sure to also note that you have permission to do any renovations necessary for your business.
- Parking: Write out any parking spaces that will belong to you as part of the least.
- Care & Maintenance: Our lease says this “Lessee shall be responsible for routine repair and maintenance of HVAC, lights, interior walls & floors, and general interior repairs. Lessor shall be responsible for roof, exterior walls and building structure.” What is considered “routine maintenance and repair” has been big. About 6 months after moving in the space the AC wasn’t working – we hadn’t even used it yet (it was right after winter). We called the landlord and they tried to make us pay for it. Fortunately, we were able to talk to the contractor who confirmed that the problems were NOT routine maintenance and repair, so the landlord had to pay for it. Make sure to have that terminology in your lease – and always make sure any repairs are actually your responsibility.
Most importantly, make sure that anything you discuss is in the lease. Make sure all of the above items are spelled out in the lease!
Next, 30 days to Becoming an Entrepreneur: Tips for building out your space
Photo Credit: Simon Van Der Linden