Renting space for your small business

Are you a small business owner? Chances are you started working out of a home office but the time may come when you need more space, visibility, or accessibility to meet the needs of your clients. You have probably spent a lot of time thinking about the best location, price range, and how to furnish your new space. Once you find it, you will be keen to move in and set up shop.

But before you call the moving truck, make sure you spend some time reviewing the lease. If you don’t have one, you should ask your landlord to provide you with one or at the very least spell out the basic terms of your arrangement in writing (e-mail is okay) to make sure you are on the same page. This is a bound to be a busy time but don’t sell yourself short by signing blindly.
Here are a few key things you need to think about before you starting renting:

Term: This is the amount of time when you have the right to be in possession of the space and can usually be negotiated. Don’t sign onto 5 years if you feel you might need to expand again in 2 years. On the other hand, if you want to make sure you can keep the space without having to move, think about a longer term lease – for example 10 years. A tenant-friendly option is automatic renewal subject to notice by the tenant (only), but your landlord may want the same option.

Rent: Make sure you understand exactly what your rent includes. Who pays for utilities? Is a damage deposit required? Note that sales tax will be charged on most commercial leases. If you are renting retail space, particularly in a mall, do you owe your landlord a percentage of your profits? Pay attention to the landlord’s ability to increase the rent. You should have notice in advance, it should be reasonable, and you may want to demand an opportunity to leave without penalty if the new rate doesn’t work for you.

Description of Leased Premises: The description of the space you are renting should match your expectations. If there are common areas, your ability to access and use those spaces for the purposes of your business should be included in the lease. Also, make sure that you are allowed to use your space for your business’ full range of requirements. Bear in mind local zoning/permitting requirements that might affect your ability to use the space, independently of permission from your landlord.

Parking: Does your business require access to parking? This can be contentious in urban spaces so make sure you and your clients have what you need. Consider a right to have signage to designate the parking spaces that are allocated for your business.

Advertising: How do you want to promote your location? Discuss signage with your landlord in advance and keep in mind that a permit from the Town/City may be required – particularly if your signage overhangs a sidewalk.

Neighbours: Is your business compatible with the other tenants or neighbours in close proximity? Consider requesting a guarantee from your landlord that he will not offer space to competing businesses during the course of your term. Make sure the nature of your business is clear (e.g. pizza delivery service) so that there is no confusion on this point.

Renovating: If you decide to renovate, make sure that your landlord is in approval and that you are in agreement about what will happen when the lease comes to an end. You may be required to restore the space to its earlier condition or leave some of equipment/furniture that has been added if it is attached to the building structure (countertops, cabinets, kitchen equipment, etc.).

Terminating: How much notice is required? What are the penalties? Think about why you might need to leave early and what would be sustainable for your business in that case. If you leave because of a dip in profits, a high financial penalty could be very damaging to your bottom line. At the same time your landlord needs to protect his financial interests, so think about how you can reach a compromise. For example, you could agree to pay 3 months rent upon notice of termination, instead of paying the value for the remainder of the term.

Insurance: There are different types of insurance for commercial properties. Most likely your landlord has insurance to cover general damage to the building structure, but you should confirm this. You should also consider the unique risks associated with the nature of your business and determine whether additional coverage is required. You might want to insure the contents/equipment stored at the property and procure general liability insurance as well. We would suggest consulting with an insurance broker to discuss the right level of coverage. Just don’t assume that insurance is automatically in place!

Building maintenance: This can range from clean-up and garbage removal to serious repair work. You might want the ability to make repairs yourself if your landlord does not, but he should be responsible for reasonable costs associated with the work. Ideally your landlord should be required to maintain the building in the same condition as when you move in and to make repairs upon request. If your landlord is responsible for snow and ice removal this should be done in a timely fashion.

Access: How will you and your clients access the property? Not all buildings are wheelchair accessible. This might not pose an issue but if you serve the public a lack of ramps, wide doorways, or level flooring could be problematic. Also think about building security, hours of operation, lighting, and holiday and weekend access. Can your landlord access your space? In what circumstances? Depending on your privacy/security requirements you might want to be notified in advance.

These are just some points to consider when you start renting space for your small business. Along the way, remember that your lease is an agreement that can be negotiated. What’s critical is to ensure that you and your landlord have the same expectations and that these are reflected in writing – even if just in a clearly worded e-mail. It’s in no one’s best interest to have to prove a verbal agreement in court.

One more thought: we work with a lot of sole proprietors in which case consensus is a given, but if you are a co-owner make sure that your business partner(s) are on board with the rental arrangement you enter into. This is probably a discussion that should happen before you start looking for space, but certainly before anything is signed. The longer the commitment the more important the consensus. Young businesses can evolve and you may want to discuss an exit strategy in case one of you decides to leave during the course of the Term.

If you would like assistance reviewing or negotiating the terms of your commercial lease we would be happy to guide you through the process or advocate on your behalf. You can reach Sarah at (902) 209-6537 / sarah@cslegal.ca or Natalie at (902) 240-4080 / natalie@cslegal.ca.

Posted in Real Estate, Small Business and tagged , , .