Question: Generally, an entrepreneur starting a business is well advised to lease rather than buy property because the future success of the business is uncertain. By leasing instead of purchasing property, persons just starting out in business allow themselves some time to determine whether the location is right and whether the business profits will warrant the outright purchase of property. Factors to Consider One thing to keep in mind when leasing property is that lease contracts are usually form contracts that favor the landlord. Thus, as a prospective tenant, you need to think about negotiating terms more favorable to you. Before negotiating the terms of the lease, do some comparison shopping to find out the rent for other similar properties in the area. Usually, rental prices for business property are stated as so many dollars per square foot (per month or per year).
In commercial leases to retail stores, part or all of the rent may consist of a percentage of the tenant's sales made on the premises during the term of the lease. Bear in mind, too, that the nature of your business should determine, to a great extent, the location of the leased premises. If you are involved in a mail-order business, for example, you need not pay the extra price for a prime location that might be required for a restaurant business. Negotiating Lease Terms When negotiating a lease, you must also determine who will pay the property taxes, insurance premiums, and utility bills and who will be responsible for repairs to the property. These terms are generally negotiable, and depending on who takes responsibility, the rent payment may be adjusted accordingly. Generally, your success in negotiating favorable lease terms will depend on the market. If the rental market is "weak" (that is, if you have numerous other rental options at favorable rates), you may be able to convince the landlord to be responsible for taxes, insurance, maintenance, and the like, and possibly for improvements to the property necessary for your business. Therefore, it is important to investigate the status of the market before you begin negotiations with a potential landlord. CHECKLIST FOR THE LESSEE OF BUSINESS PROPERTY
1 When you are starting a business, consider leasing, which can be beneficial because it reduces your liability in the event that your business is unsuccessful.
2 Realize that although lease contracts normally favor the landlord, you can usually negotiate some advantageous terms for your lease of the premises.
3 Make sure that the lease clearly indicates whether the landlord or the tenant is to be responsible for taxes on the property, expenses relating to necessary maintenance and repairs, and utility costs. By comparison shopping, you should be able to judge which lease terms are favorable and which are not.
4 To protect yourself in the event your business is unsuccessful, start with a short-term initial lease, perhaps with an option to renew the lease in the future, and include a reasonable termination clause.