7 Due Diligence Tips Before You Lease
admin / September 10, 2020
Leasing space is a big step for many firms. It is important to understand the process, the terms of your lease and the responsibilities you have as a tenant. A review of these important factors is all considered “doing your due diligence” BEFORE you sign on the dotted line. Doing your due diligence will save you numerous headaches, hassles and business disruption. Here are seven tips to make your review easier:
1. Know Your Space
It is important to know all you can about the space you are considering to lease. One way to begin to do that is to actually walk each and every part of the rental space. You are probably devoting a significant amount of dollars to leasing space and it is important to understand all the issues with the space, as well as the pluses it can offer you.
We recommend the use of an outside expert to check wiring, HVAC, columns and other elements to make sure they are compatible with your company’s needs.
2. Tenant Improvements Are Negotiable
Even though the property belongs to the landlord, there is an opportunity for you to make it YOUR space. Tenant improvements add considerable value for your landlord, but also insure the space is suitable for your needs. When negotiating your lease, be sure and also negotiate improvements to the space. Note, when negotiating for build-outs, landlords often attempt to recoup their financial involvements through other lease terms like increases in expenses which are used in determining rental rates or passed through to the tenant. They also are often looking for longer term commitments from you.
3. Make Sure the Environment Is Safe
When looking at space, make sure the environment does not have contamination issues or is in a danger-prone area. It’s important to view the property at night as well as day to insure your employees can arrive and leave in a safe environment. It is very important to ensure that you are not renting commercial space in an area where there are any immediate or looming threats. Contaminated buildings (asbestos, lead, etc.) are not safe for employees, and this can lead to a loss in productivity.
4. Incorporate Grace Periods
As a potential tenant in a commercial office space, you should push for grace periods. In order words, ask for the right to receive written notices of defaults and a reasonable opportunity to cure an issue before a default is declared under the lease. Lease termination, rent acceleration, and enforcement costs (including court costs and attorneys’ fees) are some of the legal rights that landlords can enforce against defaulting tenants.
5. Develop Your Long-Term Lease Plan
Before you start negotiating, make sure you understand what your long-term lease plan is. Ensure that the term length in the lease matches your company’s business goals. If you run a start-up, you may want to see a shorter term lease with renewal or expansion rights. If you are an established company, may want to go for a longer term in order to have stable cost metrics. If you are looking at warehousing, does it need to be for the length of an existing contract or do you intend to grow your needs with additional contracts?
6. Know the Local Laws
DO NOT ASSUME. Ensure your landlord is up to date according to local zoning laws and regulations. If they are not, it could hurt your business down the road. Many companies have been put out of business due to the landlord’s negligence related to wiring codes, smoke alarms, easements and more.
7. Conduct a Background Check
Before signing the lease ensure that you conduct a background check on the landlord and property management team. You want to make sure you are dealing with reputable people. You can do this by checking online reviews as well as news articles. This will help you to know what other companies think about the landlord and the location.
Remember, due diligence is a must before committing to rent a space. It will save you unnecessary hassles and allow you to concentrate on enjoy your new space, while you grow your business.
