Eight Big Mistakes to Avoid When You Lease Office Space
Hey, we all make mistakes - but when it comes to leasing office space for your business, mistakes equal dollars - sometimes big dollars.
Here are the eight most common mistakes tenants make when renting office space, as well as an insider's take on how to avoid making them.
1. Lack of planning. Believe it or not, many tenants aren't clear on exactly what they need. If you're out looking for twenty thousand square feet but you only really need fifteen thousand, you've got problems. Have an architect do a space program to figure out how much space you really need.
2. Lack of tenant representation. We could write an entire article on the benefits of using a tenant representative but suffice it to say there's really nothing better than hiring a professional broker to be on your side. A broker understands the ins and outs of the market; he or she can negotiate for you, and best of all, can narrow down the buildings that would be best for your business. This know-how and advice are indispensable, and can prevent you from making some major mistakes which you will pay for down the road.
3. Lack of document inspection. Leasing office space means a whole lot of paperwork. One of the most common mistakes tenants make is that they're not careful enough with what they sign. Everyone should read the documents - you, your attorney and your broker. Landlords think long and hard about how to make as much money as legally possible on their buildings. The 70-page lease document they give you is not designed to be fair. It is explicitly constructed to make money for landlords, so read all the fine print (see #5).
4. Rent and security deposit. Before agreeing to the monthly rental, many people do not benchmark similar properties, and end up paying more than the market rent. It is important to compare similar office properties and find out the going market rent in that area before entering into negotiations with the owner. This is Real Estate 101 for tenant rep brokers. Hire them - they know what they're doing. The security deposit must also be based on supply, demand and the regular market norms. However, if the owner of the office space seems to be in a big hurry to rent out his place, you can always negotiate with him and save yourself some money. Again, this is where a tenant representative comes in handy; he/she will do all of this dirty work for you!
5. Not checking lease terms. A tenant must read and understand the lease terms carefully. Are you comfortable with the notice period? Let's say the landlord has the right to relocate you to another floor or space in the building (a "relocation" clause, something that is common for smaller deals) - how much notice does the landlord need to give you? What if the lease says 30 days? Can you really pack up and execute a move of both your physical stuff and your technology in 30 days? Probably not.
6. Underestimating your negotiating leverage. Tenants tend to think that the landlord is all-powerful, but that's not the case. Ultimately, a landlord is in a service business, and his business is to keep his building full. If this means he must negotiate with his tenants to fill his spaces, he will. This is especially true for small tenants - even if you're a five-person firm in a million square foot building - you have more leverage than you think.
7. Working with a biased broker. Dual representation should be avoided. Brokers who work for a big commercial real estate firm that works for building owners but also says they represent tenants will side with the landlord over the tenant. This is because a landlord who owns several buildings is always going to be more valuable to a big real estate firm than a tenant. Instead, choose a broker who is not conflicted and who represents tenants only.
8. Too little time. Tenants drastically underestimate how long it takes to renew a lease or to move. Depending on how much space you need and how complex your technology is, it could easily take 8-12 months to negotiate your deal.