Signing the wrong lease can be very costly to a restaurant or retail shop owner. Unfortunately for many small business owners, finding a good commercial spot is often a last-minute search on the internet or a quick phone call to a friend who might know something about the real estate industry.
Doing it that way is how you end up signing the wrong lease. On the other hand, researching commercial real estate options long before you need to sign a lease will pay off handsomely in the years afterward.
Location – You want to be where your customers are
It is the first thing everyone says about real estate and for good reason. Location, location, location is key because you want to be where your customers will be. If you need a place for a fast casual restaurant, you should have several options for places to consider. If you’re planning to open a fancy, top-rated Zagat-reviewed restaurant, you will want to choose a location in a more posh, affluent part of town.
Gauge how much space you’ll need
The industry rule-of-thumb for a restaurant is 12 square feet per customer. For retail shops, you’ll want to research and calculate the average sales per square footage for your industry. For instance, a bookstore might average a certain amount per square foot but a jewelry store will likely average another amount. Incorporate this research into your business plan and then use it to determine how much space is needed.
Make sure you take a Goldilocks approach: too much space can make your business appear empty but too little space can make it look cramped and crowded. Go for something that will look ‘just right’ when a new customer comes in the door.
Read the lease
Remember how we mentioned the fact that doing a last minute search for a space can cause a business owner to sign a bad lease? Here’s part of the reason why: business owners are often in a rush to see their dream come alive that they neglect to go through all of the details in the lease. Don’t make this mistake. The lease is a contract and you’ll be bound by its terms if something should go wrong with the property or the rent or any number of things. Make sure you understand everything you’’re signing up for when you put your name on those sheets of paper.
Know the types of leases available
Speaking of leases, it’s a good idea to become familiar with the types of leases available. In general, there are three types: full service, net lease and modified gross lease.
In a full service lease, the landlord pays all or most of the expenses for the property. This typically includes taxes, insurance and maintenance costs.
Net leases come in three flavors: single, double or triple net. Single net means the tenant pays base rent plus a pro-rata portion of the building’s property tax. Double net means the tenant pays base rent plus pro-rata portions of the building’s property tax and property insurance. The triple net lease means the tenant pays base rent plus pro-rata portions of the building’s property tax, property insurance and maintenance costs.
A modified gross lease is sort of a mixture between the previous two. The tenant pays rent and pays a pro-rata portion of the taxes, insurance and maintenance but they pay it in a lump sum. This makes things slightly easier for the tenant because they will not need to worry about those costs changing during the term of the lease.
Check out the landlord’s history
Lastly, you should check out the landlord’s history before you sign a contract with them. One of the easiest ways to do this is to visit your future neighbors and see if they can tell you anything about the landlord. If you’re thinking of renting space in a shopping center, go next door and ask the business owner there if they can tell you anything about the landlord experience. Another way to find information is to look on the Better Business Bureau’s website. Or, you could go to a local networking event or a chamber of commerce event and see if anyone there knows anything about the landlord.
Following these steps should help you find the perfect spot and then sign on with the right landlord. Just make sure you don’t rush into anything without checking out as much as you can about the location, the lease and the landlord.
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