10 questions to ask before leasing commercial space
Sept. 22, 2015
By Jeff Grandfield and Dale Willerton
When planning to lease a space for your restaurant business, you will want to prepare yourself for lease negotiations with a commercial landlord (also known as the lessor). One of the most important steps you can take is to ask plenty of questions to better protect yourself, your interest and your investment. Here are just a few of our recommended questions:
- Who is the Landlord? Will you be dealing with a large institution, a bank or a small independent "Mom and Pop" landlord? Different opposition requires different negotiating strategies. Large institutional landlords are slower and often handle leasing matters through a board or committee — rather than one individual. Therefore, there may be some delay with the landlord’s response time to an offer to lease. Furthermore, that large institutional landlord may be located in another city, and dealings will be primarily by phone , e-mail, or local representatives. Smaller landlords are typically more local and more accessible.
- How long has the landlord owned the property? Many commercial landlords have been in business for 10 (or more) years. "New" landlords are a rarity. Established landlords including "holders" and "flippers." Holders will keep the property long-term and work to increase its value, while flippers will quickly resell the building for a profit. A newer landlord will know less about the property while a long-time landlord (typically) will have realistic rent expectations. Conversely, a new landlord may have a new high mortgage and may charge tenants higher-than-market rents to help cover that cost.
- Where is the landlord located? A local landlord is often more accessible, thus making it easier to deal with potential problems before and after signing the lease. One of our tenant clients was trying to meet with his landlord — as a 70-year-old doctor, who practiced part-time and took many holidays, he was often not around.
- Is the property manager local? Ensure that the property manager is readily available to deal with any concerns you may have. Property managers may look after multiple sites, and if the sites are not all in the same town or city, the property manager may be out of reach — when you need him/her.
- What is the building’s history? An older building may require significant maintenance, which tenants (both franchise and independent) pay for in Common Area Maintenance (CAM) charges. Are you prepared to invest money into an old building?
- Who is doing the leasing for the property? Landlords handle leasing in different manners; they may deal with the leasing themselves, hire in-house leasing staff, or turn the listing over to a real estate agent. Each party will have a different motivation for seeing the deal signed, plus each will be more or less knowledgeable about the property. Call the most experienced leasing rep.
- Who were the two most recent tenants to move in and when? Approach these tenants and ask them how their lease negotiations went. The listing agent or the landlord can provide occupancy records for previous and recent tenants.
- Who were the last two tenants to move out? The agent will be able to answer this question, but you may want to ask other tenants in the building for more facts. When and why did the formers tenants move out? Were they unhappy with the building and moved elsewhere? Did they retire or sell their business? Why did they leave? What were their opinions of the landlord?
- Who is the property’s biggest tenant (the anchor tenant)? How secure is this anchor’s tenancy? The anchor tenant(s) typically attracts the most traffic to a property so you will want to confirm that they will be staying. The agent you are dealing with will be able to confirm this for you.
- Is the building for sale? Due to the number of limited qualified buyers available, commercial buildings are not advertised for sale in the conventional way (with a conspicuous “For Sale” sign posted out front). Instead, commercial properties are offered to other landlords through a commercial property website. Building owners looking to sell their building will have different motivations towards prospective tenants. Also, consider that you may like the current landlord but dislike the new landlord.
Dale Willerton and Jeff Grandfield - The Lease Coach are commercial lease consultants, professional speakers and co-authors of "Negotiating Commercial Leases & Renewals For Dummies" (Wiley, 2013).
Topics: Insurance / Risk Management, Operations Management