ProTip #7 - Leasing - The Big Business Picture

Leasing of commercial office space has over the years affected my business quite a lot… generally when my clients have not paid enough attention to the leasing arrangements and they fail to really grasp and define what the lease means and what they have committed to. A bad lease will generally end up:

• Costing the client a lot in rent – their lack of knowledge and understanding means they sign up for above market price, do not receive a standard incentive or commit to excessive rent rise percentages at each yearly review.

• Delaying the signing of a lease means that any building works cannot proceed, because without an owner consent signature on council forms, nothing can start. We need to have a sensible and realistic timetable to achieve parallel activities, and make sure the lease is in place so that other important issues can be undertaken with certainty.

• A crazy rush to get the project complete because of the delays caused in signing the lease causes the tenant to end up paying additional money to get the fit out complete in a short time. It’s important to avoid crisis decisions that always cost money and being able to understand the leasing process is just part of the relocation process.

The lease is a critical part of the complete process for moving office and not given the attention it fully needs.

Leasing commercial industrial retail and/or specialist space like a medical suite is quite an expensive part of any business’s overheads. Once the lease is signed your business is committed for a number of years to that monthly payment. Rent and outgoings must be budgeted over the term of the lease, together with realistic tax and depreciation estimates, to give a full budget picture before binding commitments are made. So let`s start at the beginning – it’s all about the company.

• What industry sector are you in? Pharmaceuticals have different profiles to small engineering companies. Specific industry needs must be defined so that a search for a suitable property can begin.

• Is the business growing or contracting and at what rate? Review the last three year’s business performance and make projections for the next three, five or ten years. This will help forecast growth. How many metres squared have you leased previously and what do your plans, industry knowledge and growth prospects tell you that you’ll need in the future? Are different parts of the business growing at different rates? Does your current lease or the lease you may be considering have an Expansion Option and if so do you understand how to act on it?

• Why the relocation? Could you stay put and reconfigure? What impact would this have on your current business performance?

• What is the driver for change – the main reason you need to relocate your office? It may be one of many things:

  • Too much space

  • Too little space

  • A developing business line may require different space modeling

  • New business competition

  • Expanding into new markets

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