The importance of time, timelines and timing with your commercial lease
Thursday, July 21, 2016
The commercial leasing process can take differing amounts of time, depending on whether you're opening your first or fifth business location. You can discover a lot during your first few lease deals that you can carry forward — potentially saving you both time and money with further leasing projects.
The key is to give yourself ample time so you can recover from setbacks and delays without it costing you more capital or rent.
We have heard from many tenants who have explained how they felt pressured by real estate agents who keep pushing them to make a deal or sign a letter of intent. Many of those same tenants have regretted caving in to that pressure and making hasty decisions.
Often, you will get a call from the agent saying someone else is looking at the space you looked at last week, so you had better hurry and sign an offer to lease. Don't let stuff like that sway you. Pace yourself. Go your own speed, and get it done right.
Time is also the new money for many successful entrepreneurs who can better spend their time doing what they do best or what only they can do for themselves and their business. Many tenants hire professionals to save them time, since the entire lease process can take 20 to 40 hours stretched over many months. This is time you may better delegate to someone who does this for a living.
Pay attention to timelines as well as these can be critically important. Most often, any condition stated in the offer to lease may be for a finite period of time (e.g., 10 days). If you know up front you need more time to get your financing in order or have your contractor look over the commercial space, then ask for more days in advance. It is better to have a 20-day condition period rather than having to keep extending five-day condition periods.
Timing plays a key role with your lease renewal. Ideally, a commercial tenant will want to start the lease renewal process 12-15 months in advance of the lease expiration date. More precisely, look at your renewal-option clause. If this says your cutoff date for exercising your lease-renewal is six months before your lease expires, you would need to start the renewal process six months before that — or a total of 12 months in advance.
Note that your strength or leverage may lessen the closer you get to the cutoff deadline, so the farther in advance you can find out what the landlord wants to do with your tenancy and rental rate, the more time you have to react. If you're going to get bad news, you will want that information sooner rather than later. Do keep in mind that most landlords want (and plan) to have their tenants renew, so you're usually on the same page plan-wise anyway.
This also applies in cases where you don't have a renewal option and want to remain in your same location. The closer you get to the end of your term, the less relocation time you have, and it becomes clearer to the landlord that you can't (or don't) intend to consider relocating.
Doing this all in advance also impacts your own peace-of-mind. When you can put the lease renewal to bed earlier, it reduces your own stress dramatically.
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