C. Rent, Deposits, and Improvements

WHAT KIND OF SPACE DO YOU NEED?



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a security deposit, which the landlord will

dip into if the tenant fails to pay the rent or

other sums required by the lease (such as

insurance or maintenance costs). Bear in

mind that the amount of the deposit for

commercial rentals is not regulated by law,

but is instead a matter of negotiation. Landlords tend to demand high deposits from

new or otherwise unproven businesses—

which are often the least able to produce,

and tie up, a large chunk of cash.

If you expect that you’ll be asked for a

high deposit, include in your worksheet the

maximum you can pay up front. Security

deposits (including alternatives to cash

deposits, such as a letter of credit, and

ways to get the deposit returned during the

tenancy) are explained in depth in Chapter

10.



entire bill (which is the next best thing to

finding space that’s perfect already). But for

now, don’t count on it. Instead, think about

the demands of your business and how they

translate into space requirements. Will a

generic office space do quite nicely? If so,

you don’t have to plan on spending much

to fix it up. Or do you have a business with

special needs, such as a veterinarian’s office

that needs special lights, plumbing fixtures,

alternate power sources, and ventilation? If

this describes your situation, you’ll need to

put some resources into readying the space,

even if you find a rental that is appropriate

in every other respect. For purposes of

your Rental Priorities Worksheet, figure out

what it would cost to make usable but

bare-bones space ready for your business

and add that dollar amount to your list.



3. Other Improvements

and Expenses



D. Location



Security deposits aren’t the only up-front

costs that tenants may face during the first

few months of operation in a new location.

Unless you are fortunate enough to find

space that is configured and finished just as

you would like it, you’ll want to modify the

space to fit your needs and tastes. These

modifications are known as your “improvements.”

There are several ways that landlords and

tenants can allocate the cost of improvements

(Chapter 11 describes each in detail). You

might find a landlord willing to foot the



The physical location of your business is

likely to be important to you, your employees, your customers or clients, or your

suppliers. The more people and groups

you need to please, the smaller the number

of possible rentals that will fit the bill. This

section explores some of the considerations

regarding location.



1. Neighborhood and Neighbors

Being in the right part of town and even on

the right street can be an important factor



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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



in the success of a small business. If you

have an upscale restaurant, for example,

you may want to lease space in the entertainment district or be part of restaurant row.

Or you may prefer to locate in an area of

new suburban housing where you’ll be the

only eatery for miles around. Your priorities

worksheet should indicate the degree of

importance you assign to location—and

spell out your ideal location in as much

detail as possible. If your business places a

low priority on location, consider yourself

lucky, for you have fewer limitations on the

number of rental spaces that will be acceptable to you.

EXAMPLE: Jake runs a roommate-finding



business—people looking for shared

rentals register with Jake’s service and

wait to be connected with an appropriate match. Jake would like to open a

branch in a certain university town, as

close to the campus as possible. Jake

won’t bother looking at rentals in the

town’s financial or upscale shopping

districts, nor will he be interested in the

suburban shopping malls. Because the

number of potential rentals is rather

small, Jake’s search may take a while,

but he won’t waste time looking at

geographically inappropriate places.

It can be just as important to be near (or

far away from) certain neighbors as to be in

a particular neighborhood. If peace and quiet

are important, you won’t want to be in a



building with an aerobics studio upstairs.

On the other hand, there may be certain

neighbors whom you’d like to have around.

A physician, for example, would like to offer

his patients the convenience of a medical

lab next door; and a car repair shop will

benefit from the nearby presence of a

welder. Again, the more you can focus on

important features of your rental, the more

you will narrow your search and the more

efficient you’ll become.



Downtown or the ‘Burbs?

It used to be that there was only one place

to locate your business—in the downtown,

business section of town. But with the

development of suburbs came the opportunities for setting up shop in a mall in

basically residential areas. There are

significant differences between downtown

and suburbia. Downtown, the rental space

is likely to be vertical (you may need more

than one floor), whereas space in a mall

(which is often one-story) is usually horizontal. In many cities, rents tend to be

higher downtown, in part because land

may be more expensive there. Also, labor

and material costs may be higher downtown, and security, parking, trash removal,

and lighting can be more expensive. If you

plan to be open on weekends, you’ll want

to avoid a downtown area that’s deserted

between Friday evening and Monday

morning.



WHAT KIND OF SPACE DO YOU NEED?



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2. Commuting Time



3. Access to Public Transportation



We’ll assume that there aren’t too many

folks who would voluntarily choose a long

commute. But a moderate or long commute

may be more onerous for some than others.

If spending an hour each morning and night

getting to and from work is unacceptable,

give a high priority on your worksheet to a

short commute. On the other hand, you may

regard a moderate commute, especially by

train or bus, as a good time to read the

paper or attend to correspondence. You

might also be willing to put up with a

commute in exchange for doing business in

a reasonably priced location or one more

convenient for your customers or clients. In

either case, you’d probably assign a lower

priority to having a reasonable commute to

and from your business.

Besides considering your personal preferences, don’t forget how location will affect

your employees’ commutes. Play it safe and

assume that most, if not all, will want shorter

rather than longer travel times. If you depend

on a large number of modestly compensated

workers, there should be moderately priced

housing within a reasonable commuting

distance. If employees have to commit a

large portion of their time and earnings

traveling long distances to affordable housing, you’ll likely lose them to more convenient job opportunities. And consider the

other end of the spectrum, too—well-paid

employees must be within reasonable

striking distance of the neighborhoods

where they’ll want to live.



The value of being close to public transportation is closely related to the issue of commute time. If there are ample and attractive

trains, buses, and subways, the acceptable

commuting radius for employees will expand.

If you’re a retail establishment, however,

the issue of public transportation may assume

an added importance. A business that depends

on foot traffic will benefit from close proximity to a bustling transit point or center.

And if your business is convenient to a

major bus or transit line, customers are

more likely to choose it over a comparable

establishment that’s less conveniently located.



4. Expressways, Freeways,

and Throughways

If employees and customers are likely to

come from out of town or from a wide

geographic area, you may place a high priority on being located near an expressway.

Telling people to “Get off at Exit 10 and go

two blocks north—we’re on the corner” can

make access really convenient.



E. Length of the Lease and

When It Begins

It may be important for you to secure a

space that will be yours for a long time to

come—or you might want the flexibility of

a shorter lease. Do you need to find a



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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



place right away? Or do you have the

luxury of shopping around until you see

the perfect spot? You need to assign a

value—a priority—to the length of the lease

and when it’s available. This section provided an overview of key issues regarding

the term of a lease. For a more extensive

discussion, see Chapter 8.



1. Length of the Lease

The “term” of your lease means its chronological life. Your lease could be as short as

month to month, or run for one, five, ten or

even 15 years. As long as you satisfy the

important conditions of the lease (such as

paying rent and other costs), you have the

right to remain in the space until the lease

expires. And unless the other terms of the

lease provide otherwise, they, too, are

guaranteed for the life of the lease. For example, your landlord cannot ignore the

lease’s promises to provide on-site parking

and janitorial services. You’ll need to decide whether to pursue a short-term or

long-term lease.



a. Short-Term Leases

Occasionally, a small business that’s just

starting out will do better with a lease permitting it to occupy the space for a limited

period—either from month to month or for

a short fixed term. This might seem attractive if you just want to test the waters, have

great uncertainty about the prospects for



your business, or wouldn’t mind leaving on

short notice.

If you want the most flexibility, look for

space that’s offered on a month-to-month

basis (month-to-month leases are often also

called “rental agreements”). A month-tomonth rental automatically renews each

month unless you or your landlord gives

the other the proper amount of written

notice to terminate the agreement. Under a

month-to-month agreement, the landlord

can also raise the rent or change other

terms with proper written notice. You can

negotiate how much notice is required. If

you don’t address the issue in your rental

agreement, the law in your state will dictate

the amount of notice required. In most

states, this is 30 days.

Another way to set up a short-term tenancy is to sign a lease for a short but fixed

period of time—say, 90 days or six months.

This type of lease terminates at the end of

the time period you’ve established. Unlike

a month-to-month tenancy, it’s not automatically renewed. You and the landlord

can, however, negotiate lease language

specifying what happens at the end of the

fixed period covered by the lease. You

could provide, for example, that if you stay

in the space beyond the stated period, your

tenancy becomes a month-to-month tenancy.

A fixed-term lease—even for a short term

—gives you the assurance that the landlord

can’t boot you out on short notice. It also

means, of course, that you’re obligated to

pay rent throughout the lease term, unless

you can negotiate an escape clause that