Leasing space for a business can be a complicated process. There are several variables to consider including location and cost.
Here are general guidelines for how the leasing process works and what you should expect as a business owner. However, keep in mind that the leasing process is often unique for every situation. These steps may vary depending on a variety of factors.
1. Determine Your Needs
First, it's important to get very specific in your needs and wants. This will help you narrow your search to just spaces that will work for your business. There are three major components to decide upon: location, rent budget, and type of space.
Location affects your visibility as well as the quality and value of your space. Ask the simple questions - Where are our customers? Our market region? Our employees? What other businesses offer a synergistic relationship? Where is the competition located?
Your monthly rent will be determined by many variables: lease rate per square foot, free rent, utilities, additional tenant improvements that are amortized into the rent, and annual rental increases as provided for in your lease. See the sections on Lease Types and Calculating Rent to learn more.
Type of Space
The type of space you need is going to be determined by the type of product or service you provide. There are several different types of commercial properties that fall under the umbrellas of industrial, retail, and office spaces. Getting to know the various types before you begin your search can be helpful.
2. Look for Right Space
One way to look for space is to drive around your market and call the listing agents of the properties that match your criteria. The challenge with this option is you won’t know anything about the property or its asking rate until you call.
Another option is to secure the services of a tenant representative. They can show you what’s available in the market in the locations and price ranges you want. Then you will be able to tour your top picks and perform the analysis on which property best fits your business needs.
3. Create a Letter of Intent
A letter of intent is then sent to a property owner stating your desire to enter into a lease agreement at their property. These agreements are not leases, so they are non-committal in nature, but they do establish your intent to negotiate a term with the landlord.
4. Begin Lease Negotiations
There are typically many sections of a lease that establish the terms of your agreement with the owner. Lease negotiations involve several factors including:
- Lease rate
- Length of term
- Rate bumps
- Renewal options
The negotiations occur regarding these points and can take anywhere from a few days to several weeks or even months to complete, depending on the complexity of the lease.
An owner will also want to establish your financial credibility as a tenant. In other words, you’ll need to establish your trustworthiness to pay the rent due the owner as part of your agreement. Financials and other documents are used to establish this credibility.
5. Identify Target Occupancy Date
The date set for occupancy can be subject to change depending on the amount of tenant improvements (TIs) that are required. These improvements come in many forms starting with simple paint and carpet to constructing demising walls.
The more complex the TI, the more likely the target date will change. The critical stage in this process is when the TIs are completed and a Certificate of Occupancy has been issued for the space.
6. Move In
Once everything is ready, the fun part begins.