Opening up your first establishment or expanding your current properties is exciting for any small business owner. But there are a lot of complexities to commercial real estate that can quickly cause problems if you don’t know what to watch out for. That’s why we’ve put together this list of common mistakes small businesses make when signing a commercial lease so you can avoid them.
Not Anticipating Hidden Costs
Broker’s fees, security deposits, and rental fees are all commonly overlooked, but they can easily run to thousands of dollars. Some landlords or commercial companies will charge several hundred dollars on top of the base rent every month. Maintenance expenses, waste removal, and even charges for working with a third-party can all factor into your monthly bills. Be sure to carefully assess how much renting a property will really cost you to lease before you sign any contracts.
Failing to Address Personal Responsibilities
There may be different expectations between you as a renter and your landlord in terms of property maintenance, repairs, and so on. Ask in advance what roles you must fulfill and which are handled by the property owner. Do you have to pay out-of-pocket for routine inspections and repairs? Are there any maintenance resources available, or does anything relating to the property’s functionality fall to you during your lease? If you fail to uphold your end of the agreement, then what are the consequences? Some renters are shocked to find that they are financially liable for repairs and cleaning after their lease ends.
Not Researching Commercial Law
Commercial law is in place to protect leaseholders, but it can sometimes be exploited to get landlords out of certain responsibilities. For example, signing a lease “as-is” waives the need for inspection. You agree to take on the property as it was left, which means it may not be cleaned or you may need to have damages repaired before you set up shop. There could be outstanding issues with the roofing, insulation, plumbing, or electricity that are unaddressed because you signed the lease to take the property as it was when you saw it.
Do your research, and know what is and is not permissible under commercial law in your state. This can help you better understand a lease before you sign it and ensure you’re only committing to renting from a reputable agency. It can be helpful to have a lawyer experienced in commercial law look over your lease before you sign.
Not Researching Tax Implications
Taxes are often factored into the rent, or they may be charged additionally each month. So, if a property is listed at $7,000 a month, you likely won’t be paying solely that amount. Tax rates for commercial leases vary by state, and the size, age, and location of the property will also play a role in how much you have to pay. Typically, commercial renters pay an additional 3 to 6 percent on top of their base rent. This can make an affordable property difficult to manage if you’re a small business owner.
It’s also helpful to consider other costs you’ll face in addition to taxes. Utility bills and operational expenses should be factored into your monthly budget and financial calculations.
Small businesses have to be scrutinous when evaluating prospective properties. Commercial leases work differently from residential ones, so a bit of planning and research is essential. You may also find that renting with a commercial real estate agent is helpful. They can help you mitigate all the technical aspects of commercial leasing that you may not be aware of.