Most businesses benefit from leasing property, rather than owning it. But, for some, its not entirely obvious why leasing is the better option. Here are a few reasons why you should consider leasing and some clever ways to save money on rent.
Here are four of the biggest reasons to lease:
- Its cost effective
- There are no repairs
- Theres no down payment
- You can move up at any time
The simple fact is that most businesses cant afford to buy or build a new building when theyre first starting out. Its expensive. Leasing lets you get up and running with little or no money out of pocket.
This is incredibly important with a fledgling business because its so fragile. The slightest interruption in cashflow can send the company spiraling out of control.
Another reason to consider commercial real estate for lease is the fact that there are no repairs that have to be paid out of pocket. You get to defer all expenses to the property owner.
There are no down payments. When you want to lease a place, you simply ask about the rent, sign a contract, and move in. Many commercial properties allow for significant remodeling too, so its like owning, except you dont have any of the responsibilities.
Its not uncommon for companies to outgrow their building in the first few years as they grow and expand. When this happens, you dont want to be stuck in the building you just bought. When you lease, you can take the cash that you saved, and hopefully put back into the business, and use it to move out of your starting office into a larger one.
If you were to buy office space, you would have to either pay for the expansion project yourself or sell the office and buy a new one. This is very expensive, and not a great use of company resources.
Here are a few ways to save money on rent:
Negotiating Your Lease Term
Negotiating expenses should be your first attempt as saving on the cost of rent. A direct rental negotiation prevents you from paying too much for the basic rental of the office or building. Dont be afraid to ask for less than what the property manager or owner initially asked for.
You may have more clout if you are a high revenue tenant and you would function as an anchor store in a multi-unit commercial property.
But, when youre first starting out, you can still negotiate rent based on the idea that the landlord would rather have a paying tenant than a non-paying one. And, if the rent is not sustainable, then you may have to break your lease early.
You could even work out a deal where you pay a deep discount for the first year, with a guaranteed increase in rent over the next two years to make up for the landlords loss.
If you do this, expect the property owner to want a multi-year contract with provisions to collect on any unpaid years in the contract.
This is a risk for you, but it could allow you to get up and running when youre short on cash right now.
Ask About Utilities and Watch Out For Hidden Costs
Ask about utilities. For the most part, youre going to find that you are responsible for paying them, but thats not exactly what you want to know. You want to know how the utilities are split up. In most arrangements where theres a single tenant (you) in the building, its unequivocal. Youre paying for the utilities you use.
But, in complexes where there are multiple tenants, make sure you understand how the utilities are split up. Some buildings are not wired so that individual rooms are on a separate meter. Or, in some older buildings that were converted into multi-unit rentals, the wiring may be shared by several new offices.
So, you could end up paying part of another companys utilities.
Obviously, this isnt fair, but you want to know what youre getting into before you get into it.
Another thing to look out for when researching how utilities are charged is are they metered or are utilities assessed by the square footage? You could end up paying more or less one way versus the other. Ideally, you want to pay less for utilities, so be sure to include this in your negotiations.
Comb Over The Fine Print
Read the fine print. Make sure youre not getting hit with any unusual fees in the fine print. It should go without saying that many landlords include fees that you might not expect, like Common Area Maintenance (CAM) fees or fees for shared spaces.
Protect Yourself With Clauses
Ask to include subclauses for subleasing, exclusivity, and co-tenancy. Subleasing lets you sublease your office to another building if you need to leave before the lease has ended. Exclusivity prevents competitors from being leased out next to you, and co-tenancy protects your foot traffic if an anchor store leaves.
For over 10 years Eli Russell has worked as the Chief Marketer and Leasing Agent for JGM Properties. “In that time I’ve placed nearly 500 business tenants in a new office, retail, commercial, industrial, or warehouse space rental. Because we have so many different types of commercial real estate space available for lease throughout the Minnesota Twin Cities Metro Area, it’s afforded me the opportunity to meet thousands of entrepreneurs and business owners in Minnesota.”
Photo Credit: Scott Hingst