5 Things To Consider When Evaluating An Office Lease

The complexity of numbers is such that if you want a firm grasp of it, you may need a PhD in astrophysics, astrology, philosophy, divinity and general mathematics. Or you can simply hire an accountant or an attorney. Simple.

However, in the event that you can’t, or haven’t immediately, and you want to be sure you’ve made the right choice in an office lease, you have to consider more than just initial costs. Think future expenses here. Think prospects of success. Sure, it’s a big step forward to land a lease, getting you that much closer to running your own business, but make sure it’s the right lease by considering these factors.

Location, Location, Location

Accessibility is key. Before you sign on the dotted line, ensure that your office space is, well, essentially profitable. Is there traffic? Is there parking? Can you possibly expand on the space? All of these are relevant questions. If the space is out in the boondocks next to an airport, and your business is to sell fish bait, you might be looking at the wrong location. That, of course, is an extreme example.

It’s tough that when you sign on that dotted line, there’s almost no going back. If your business isn’t doing well, and your real estate lawyer shakes his or her head in bewilderment, you may find that you’re just stuck with what you have, because it is in fact extremely costly to break that lease. Save yourself the trouble.

Additionally, if your lease doesn’t afford you the ability to grow as a business, you also may find yourself having to do more research to relocate — costing you more money — just to continue to expand. That’s bad for business. Consider shipping routes, signage availability, recruiting potential, and even competition location. All of that can factor into your choice in signing up for that office space.

Money Talks, and It Should Carry on a Conversation for a Long While

Now don’t get me wrong: there’s no such thing as a ‘perfect’ office space. No matter how much research you take on, you’ll almost have to always adjust to your building a bit when you finally make that decision. It’s almost like a relationship, or a marriage.

The point of making this check mark on your list is to figure out which space will cost less to maintain. Especially which will cost less to expand on. Think future here. Not just the present tense. When you’re going in for business, you want to look at your lease in the long term. Hire a professional to examine the condition of the building, or buildings, in question, and get a good figure for how much you’re looking at in improvements and/or additions. Sometimes you could even work in those types of expenses into a lease and negotiate terms that way as well.

Consider also the possibility of corporate advancement: maybe you need more computers to handle all the workload. Will the work space have that much space to hold all the Macs or PCs you need? If not, how much will it cost to add more space? Is it possible to actually add more space? Will you have to move in three years? How much will that cost?

Don’t let your head spin, though.

Watch Out for the Hidden Fees or Penalties

It’s almost like you’re a goalie. The other players are trying to score on you, sort of. Those ‘other players’ are all the fine print you might find on some leases, speaking of any of these:

  • Security Deposits
  • Improvement Clauses
  • Graffiti Removal Penalties

To make it more confusing, just about every lease in existence is unique. There’s no “standard” in the business. Review every agreement for a building you come across. Nitpick at every word if you have to. If you get confused as to some terminology in the written lease, get a good real estate lawyer to look it over with you and find out if what’s written there is fair, just and beneficial not just for the landlord, but for you as well.

Because it’s no secret: every lease may be unique, but not every lease is equal.

The Escalations Do Just That: They “Escalate”

When we hear of things ‘escalating,’ we generally do get worried, don’t we? We should. Even in the rather cut-and-dry, black-and-white world of real estate, escalations can get intense. Like rent increases, inflation, renovations, length and duration of lease, traffic flow patterns and other changes in the corporate weather.

Keep an eye on that. The important thing to keep in mind about that is most escalations on a lease are actually negotiable. Yet, another reason to hire a good real estate lawyer. Here’s one easy tip: when reading that lease, look for the term “depreciation.”

That’s an escalation you want in favor of you. It simply means that as you operate in your building, you reap the tax benefits of a building that may need a new roof one day, or new siding, or a new foundation, or a new anything, because it’s the honest truth that you have no control over the actual weather — snow, rain, sleet, hail, meteorites — and that means you have no control over the damage that could happen to your office. Why should you pay for those repairs?

If you’re dealing with a lease that doesn’t offer property depreciation to you, but to the landlord, then you might not want to sign on that dotted line.

Don’t Get “Zoned” or “Licensed” Into Anything

This is a whole ‘nother ballgame when the building hasn’t even been constructed. That’s where zoning and licensing play a huge role. While typically part of a city and state organization, if you’re considering a lease for a building that hasn’t even been built, yet, consider something called a conditional lease. It’s anyone’s ballgame when the building hasn’t been built, yet. You never know what the end result will be.

Maybe you’re considering moving out of your current location, but you still need to operate where you are. So you sign on a conditional lease — conditional on the prospect that you’ll move in and certain conditions are met, such as successful construction, room for growth, stuff that normally can’t be taken into account if the building hasn’t even been built, yet.

In other words: plan ahead, even before you can physically move in!

The Future of Your Business

Bottom line: you’re not just signing a lease as the next step toward starting your business. You’re signing a lease toward the next steps (plural) toward a successful business. Just remember to basically make those steps all at once! So many small companies and entrepreneurships out there in the U.S. fail in too short a time, and it doesn’t have to be that way. Save yourself the trouble. Make a checklist. Be methodical. More importantly — just be successful.

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Matt Faustman is the CEO at UpCounsel, the fastest growing solution for businesses to tackle their legal needs conveniently and cost-effectively. You can get more of Matt’s tips by following him @UpCounsel.