Three Must-Know Tips For Commercial Leases

Have you heard of the famous tagline from The Fly?

“Be afraid… be very afraid.”

When it comes to commercial leases, this quote definitely applies.

I talk mainly from bitter experiences of my own.

Lesson 1: Term

One year is not right. A small business person will not get a one year term in a commercial premises. One year probably will not suit you anyway because you will want some of your own fixtures and fittings.

Five years is not right either. It is far too long and if you outgrow your lease, you will be stuck there for five whole years or looking to sub-tenant the place and paying rent for maybe a year or two while you find one.

The Commercial agent you engage will be in no hurry though because their landlord will still be receiving the money that you are paying.

Oh, this has been sooooooooo painful over the years and cost my family a holiday or two in lost funds going out to landlords monthly rent with empty premises.

A three-year term is the perfect length term for a small business.

Lesson 2: Area

To a degree, choosing an area is about taking a leap of faith. However, there are some things to beware of.

Don’t pick a large premises in the hope that your business is going to grow 50, 60, 70 or 80%.

The area for growth should only be anywhere between 20 and 40%.

Too much space will likely mean that you have a lot of costly, barren space. In my career in small business I have seen many clients’ business go under from the weight of unused space.

Alternatively, too little space could mean you outgrow your leased premises far too quickly.

Always aim for a premises which has room for 20 to 40% growth from your current operations. Then if you outgrow that over a three year term, it’s no worries. You can move and begin the 20 to 40% growth over three years again.

Lesson 3: Make good is bad

Buried in the contract of a commercial lease are these two beautiful words: make good.

When you get to the end of your lease and you’re ready to move on, the commercial agent is going to tell you to get the walls painted, steam clean the carpet, pull down the office you put up, and throw everything in the bin.

They will force you to make the place ‘good’, which ultimately makes you feel bad because it costs a large sum of money to move out. You’ll also need to manage the building and repair contractors.

It is NEVER good enough for the landlord after your first efforts to Make Good. I’m feeling pained and bitter writing this…..can you feel it?

This is just something to be aware of when you move out of the building.

Commercial leases are a must for many small businesses, so these are my few tips to help you out before you get into tricky situations.

Pat Mannix, Partner, Paris Financial