Commercial Leasing: Landlord vs. Tenant Considerations

Whether you find yourself on the tenant side or landlord side, renting commercial office space comes with its own set of unique challenges. Check out the article below for helpful tips and points to consider when renting a space or finding a renter.

If you are the landlord:

1. Check the tenant’s and guarantor’s credit. In the event that the tenant’s business is not successful, the lease will only be as strong as the tenant and the guarantor’s financial condition. Even if the tenant is allowed to operate the business in the name of an entity, personal credit history is a telling indication of his or her character.

2. Ask to review the tenant’s business plan. A tenant is far more likely to be troublesome if the company is not succeeding in its line of business. Before leasing, make sure that you have confidence in the tenant’s business plan and that the location you are providing is compatible with the tenant’s business requirements.

3. Evaluate whether your tenant will have the value of synergy with other businesses nearby. In a multi-tenanted property, for instance, tenants impact each other’s businesses in many important ways. Be confident that the businesses you work with complement one another and are not direct competitors likely to drive down the new tenant’s prospects.

4. Verify that the tenant has his/her own insurance. Be certain that the tenant has adequate insurance from a highly rated carrier covering all potential catastrophes. This mitigates your risk, as well as the tenant’s, in the event of an emergency or disaster.

5. Provide for escalations of rent. Because money is devalued over time as a result of inflation, a good rent today may be inadequate in the future. The best protection is a CPI (Consumer Price Index) annual adjustment to the tenant’s rent to ensure that the dollars specified remain constant in value over the term of the lease.

6. Retain property operation approval rights. To prevent tenants from taking actions that may be detrimental to your property (and/or other tenants in a multi-tenant property), retain all operation rights in the lease. You can avoid a situation where a tenant conducts unwanted construction or puts up undesirable signage.

If you are the tenant:

1. Location, location, location! The perfect office space can lose its charm almost immediately if it’s in the wrong location. A myriad of factors must be considered before putting ink on a lease. Are you and your employees close to the space? Will clients be visiting your office and is it accessible? These simple questions often make a large impact when finding the right office space to fit your business needs.

2. Office size. The square footage is crucial when leasing your office. Take an honest look at the needs of your present company and then try to predict the foreseeable future. Will you be holding meetings? A conference room will be needed. Looking to expand down the road? Account for this growth by increasing initial square footage so desks and cubicles can be added with ease. Consider your work environment: will you require larger collaborative workspaces or will you require private office spaces for employees? Which of these will best fit your future needs?

3. If you anticipate clients in your office, try to imagine your office from their point of view. A clients’ image of your company begins the moment they enter the building; how would you like them to perceive your company? An elegant lobby area makes a strong impression. In your office, optional commodities such as signage and a reception area may cost more initially but the image portrayed to your customer can pay out in the long run. If image isn’t important and only employees will work in the space, certain amenities may not be a necessary.

4. Assume you’ll be spending a fair amount of time at or around the office, so consider the surrounding area. Simple things like a package pickup, or a restaurant in the building, can make time at the office more enjoyable, while hopefully allowing day-to-day operations to run smoothly. When visiting a space initially, visit the convenience store, café, restaurant, etc. Other amenities such as a workout facility or even a laundry service can really add job satisfaction in the workplace environment for you and your employees. Being close to public transportation, restaurants and entertainment are all added benefits of the surrounding area and can prove most important when choosing between two locations.

If you or your company are looking to expand in or enter the Utah market and need to lease or purchase commercial retail, office or industrial space, contact Chris Falk today for expert advice and access to some of the hottest listings along the Wasatch Front. Contact Chris at cfalk@ngacres.com or by calling him at 801-416-1024.