How to Rent or Lease a Building

Renting or leasing commercial real estate is a major step for any business, and especially for a startup company. A commercial lease is a commitment and an opportunity, one that can set you up for success or give you ongoing headaches. Although there is no way to gaze into a crystal ball and anticipate every variable you'll need to research about an available space, you can minimize wild cards by doing your homework and talking to a lawyer before you sign.

TL;DR (Too Long; Didn't Read)

To rent or lease a commercial building, show the space to an architect or contractor who understands your vision and show your lease to a business or real estate attorney.

Finding a Small Retail Space for Rent

There is no single foolproof way to rent a building, but the process will invariably start with a vision, research and a search. Before you actually call a realtor or answer a commercial real estate ad, take the time to write down exactly what you're hoping to find. Consider the ideal square footage, neighborhood, zoning requirements, buildout budget and whether your building will need any special features such as a garage door or restaurant infrastructure.

Next, start looking at what is available in your area. It's important to do research even before you're fully ready to lease a space because this process will give you a realistic idea of what is available and what you can hope to get for the amount you're willing and able to pay. Read ads on sites such as Craigslist and drive around the neighborhood where you'd like to rent looking for "For Lease" signs. Start a conversation with a commercial real estate agent if you'd feel more confident working with a professional, although many small business owners are able to find and rent a building without the help of a realtor.

Budgeting for a Commercial Building

Before contacting a potential landlord or commercial real estate agent, crunch some numbers to develop a solid understanding of how you will pay for the move. Consider first and last months' deposits as well as ongoing monthly rent. Also research typical costs for the types of improvements you will likely make. These may be as simple as painting and hanging a sign or as complicated as making electrical improvements and installing electrical and plumbing fixtures. There's no way to know exactly what these improvements will cost without tying them to a specific space but developing a solid understanding at the outset is a critical part of the process.

Create a cash flow projection laying out how much you expect to spend during your buildout process and also while renting your business over the term of your lease. Include monthly rent as part of your buildout cost because, unless you're able to negotiate free or reduced rent during this period, you may incur considerable rent paying for a space that isn't yet ready for business. You may need to use a commercial rent calculator in this process because many commercial lessors charge per square foot per year, and a commercial rent calculator tool will help you to translate this format into monthly expenses.

Negotiating a Commercial Lease

Commercial leases include terms and clauses not typically included in residential leases. Your lease may include charges for triple net expenses incurred by the landlord, requiring you to pay an ongoing percentage of property taxes, building insurance and maintenance expenses. You will almost certainly be required to carry your own liability insurance naming your landlord as an additional insured in case your business activities do some damage to the property. In addition, your lease will include terms governing what you can and cannot do if your business isn't able to operate in the space for the full term of the lease, including assignability, or whether you can legally transfer the lease to another business.

When negotiating a commercial lease, it's also very important to consider the term, or length of the agreement. A shorter lease term is less of a risk if your business operations don't go as planned but more of a risk if you get established and then are forced to leave. A short lease is also risky if you invest a considerable sum in a buildout and then can't renew your lease for the length of time it will take to recoup your investment. Weigh these risks, consider them in light of your long term plans and then make the best decision you can.

References

About the Author

Devra Gartenstein founded her first food business in 1987. In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.