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Last Updated: Apr 20th, 2005 - 18:45:27 |
Business owners have a lot to think about. Real estate is something they may only focus on when their lease comes due every five years or so. This list of common mistakes companies make when leasing space should help business owners obtain the deal that is truly best for their company.
#1 NOT ALLOWING ENOUGH TIME
Negotiations with a landlord and preparation of a lease can take weeks, even months. And unless you’re taking space “as-is,” the interior usually needs to be finished or renovated, which can take two to three months. Architectural plans and building permits take additional time.
Bottom line: 12 months is a good time frame to use when looking for new facilities if you are in the market for typical office space without special requirements. If you need a lot of space or have special requirements, 24 to 36 months lead time is in order. You are never too early!
#2 NEGLECTING LONG-TERM PRIORITIES
In addition to evaluating short-term needs such as number and size of rooms, type of floor plan, parking, security and communications, be sure to factor in long-term needs. By obtaining facilities and lease terms which will allow the company to expand, downsize or relocate as circumstances dictate, business owners can avoid the unnecessary headaches, loss of business and costs associated with relocating.
#3 INADEQUATE REPRESENTATION
Unless someone in the company is already an expert in commercial real estate, most business owners cannot afford the time necessary to learn this complicated industry. Lack of knowledge combined with time pressures can cause unrepresented owners to make location decisions without being aware of ALL the choices, leading to costly errors that cut into their profits and increase their financial exposure.
Using the wrong broker may lead to incomplete information, or conflicting loyalties because of hidden agendas or landlord relationships. An experienced and specialized tenant representative counterbalances the landlord’s professionals, and will insure that the tenant receives the best possible rates, terms, incentives and lease clause protections.
#4 NOT TYING LEASE TO BUILDING COMPLETION
Many inexperienced tenants find that unexpected delays in the planning, permitting and construction stages eat into their rent-free build-out periods. Tenants should always propose a clause to the lease that provides for an extension of the lease commencement date if pre-opening delays are encountered that are beyond the control of the tenant.
#5 UNDERESTIMATING THE CONDITION OF THE PREMISES
Tenants who take a property "as-is" put themselves at great risk. Even when the space looks fine and has been previously occupied, building codes may have changed or the unit’s infrastructure may be broken or inadequate. It is best to have the landlord guaranty the space is up to current building, fire, safety, zoning and ADA codes. It is also good to have the landlord guarantee the condition of the electrical, plumbing, heating and air-conditioning systems for the first 60 to 90 days (if not the entire term of the lease).
#6 USING THE LANDLORD'S PROFESSIONALS
Tenants should use architects, general contractors and legal counsel under their control to create and review the various space plans, specifications, costs and documents. Otherwise, the tenant may receive inferior designs and/or fixtures that are less efficient and may dramatically increase yearly operating costs.
#7 MISUNDERSTANDING THE TRUE SPACE COSTS
It can be complicated to compare the different lease types such as full service, gross, semi-gross, net, and triple net. Additionally, each landlord’s interior finish levels, tenant improvement contributions, lease incentives, and a myriad of other factors need to be part of the comparison equation. Get the professional help you need to be comfortable with all leasing terms.
#8 PAYING TOO MUCH RENT
Companies that do not obtain accurate, current market research may pay too high a rental rate. Landlord flexibility changes constantly depending upon many factors. Negotiations are especially important with lease renewals, since landlords are most competitive when the space is placed on the open market.
#9 CHOOSING THE WRONG LOCATION
Tenants who do not know the local market may locate into a declining area, making it impossible to hire and retain the highest quality employees. Retail tenants who choose locations in unanchored properties to obtain lower rental rates may find that traffic and subsequent sales volumes are dismal and fight a loosing battle for business.
#10 NO OUTSIDE INCENTIVES
When a company relocates it may be possible to obtain substantial economic incentives from local government. These incentives include tax rebates, relocation assistance, payroll subsidies during employee training, infrastructure improvements and others.
Suggestion: Use an experienced location analyst and incentive negotiator to make sure you obtain the best incentives possible.
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