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Given that landlords prefer lease terms of three to five years, entrepreneurs should consider these questions carefully before signing on the dotted line:
Is there room for my company to grow? Any company must consider not only its immediate needs, but also growth and other factors that could change space requirements over the course of the lease. If you can't afford to take extra space to give you room to grow, try to negotiate a shorter lease term or add language to the lease that gives you the first right of negotiation on any adjacent space that becomes vacant, says Julie Clark, a broker with Commercial Space Advisors in Seattle and founder of SharedBusinessSpace.com, a national online directory.
Is it the right location for my key employees? Consider where your key employees live and whether the space is convenient for them. A long, expensive commute may push them to seek employment elsewhere. "When considering a move, you might want to let your key staff weigh in so you don't risk losing them," says Peter Riguardi, president of New York operations for Jones Lang LaSalle, a commercial real estate firm.
Is the location convenient for clients? You also want your office to be accessible to clients, as transportation costs continue to rise and people may not be as willing to travel to patronize your business. If you leave an urban location for a cheaper space in the suburbs, consider whether the lower expenses will make up for the possible loss of clients. Even in the age of video conferencing and Skype, it's important that face-to-face meetings be manageable, Riguardi says.
Does this office send the right signal? Think about the signal you want to send when you pick your location. Your office space will be much more than a collection of cubicles; it also will be a sign to others of how much money you're making. "I've seen companies spend for a lavish space they're very proud of. They invite clients to see it, and the clients wonder if they're paying them too much for their services," Riguardi says. On the other hand, if you don't spend enough, people may wonder about the financial health of your company.
Are there hidden costs I'm not considering? Calculate the full cost of the space–rent, utilities, construction costs, moving expenses, and other costs that may not be obvious. Because there can be hidden expenses, Riguardi recommends hiring a professional broker to help you understand your total outlay. "You have to look at the costs associated with the move, even restoration of the space you're moving from," he says
What is the parking situation? It's important to consider the amount of parking available at your proposed location, as well as the potential cost to employees and customers. If parking is tight, is there a place where employees can park so customers get the most convenient spaces? Negotiating special employee rates and validating customers' parking tickets are good ideas, but they need to be worked into your budget, Clark says. "If it is difficult and costly for your employees or customers to park, they might not be your employees or customers for as long as you would like."
Is the office ADA compliant? Before choosing a building, make sure the landlord is responsible for compliance with the Americans with Disabilities Act, says Jason Hughes, president of Hughes Marino, a tenant representation company in San Diego. "This could be an enormous cost. Why gamble?" For example, the law states that doors to office suites should be at least 32 inches wide and require fewer than five pounds of force to open, while carpeting in areas open to the public must be secured to the floor with a pile of less than half an inch.
Would I consider sharing an office? Sharing space with another company saves money not only on the office rent, but also on the cost of common areas like kitchens and bathrooms, Clark says. For referral purposes, it's ideal to share with complementary businesses, such as an architect with a builder or a PR firm with a Web designer. There should be a formal agreement between tenants, even if it's month to month. Also, "if it is a good fit for you, you want to make sure the lease on the space you're sharing isn't going to expire anytime soon," Clark says.
What if I sell my company during the course of the lease? If you hope to sell your company, make sure the lease is clear about owner responsibility, Hughes says. Many leases force the original company and its owners to have liability in the future should the future tenant not perform. "There's nothing happy about selling your company only to find out two years later that the buyer hasn't paid the lease payments and now the landlord is coming after you for unpaid rent," Hughes says.
How secure are the lease and rental rate? The last thing you want is to get established in a space, then find at the end of your lease that your landlord is renting the space to someone else or jacking the rent way up. Clark suggests negotiating language into the initial lease that gives you the option to renew. Although rental rates are usually negotiated at the time of renewal, you also can try in the original contract to cap any increase at no more than 5 percent. "Real estate is rebounding in many areas, which means rental rates are rising," Clark says. "If you can control how much, it's a stick in your court."