E. Length of the Lease and When It Begins

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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



WHAT KIND OF SPACE DO YOU NEED?



gives you the right to end the lease earlier.

(Termination clauses are explained in

Chapter 14, Section G.)

The clauses in a month-to-month or

short, fixed-term lease—other than those

dealing with the length of the tenancy—are

much the same as those in any other written lease. So even though you and the

landlord can call it quits after a short time,

be sure to consult the rest of this book to

make sure you understand the implications

of your commitment, however brief it may

be.



b. Long-Term Leases

Many small businesses and landlords prefer

the protection of a lease that lasts a year or

more. There are many solid business reasons why both sides look for long-term

commitment, such as:

• Minimizing transaction costs. As you’re

about to discover, it takes a lot of

time (and money) to find and secure

good rental space. Your landlord, too,

will spend money on brokers and

lawyers. Although businesspeople can

amortize these expenses—spread the

expense over several years and take

tax write-offs for each year—it’s still

better to minimize the number of

times you go through these leasing

courtships.

• Minimizing improvement costs. Chances

are that you’ll have to alter the space

you’ll ultimately lease to fit your business needs. (Improvements are ex-



1/ 1 5



plained in Chapter 11.) You and the

landlord will negotiate who pays for

these expenses. Whoever pays won’t

want to do it again soon.

• Establishing your business. For retail

tenants who depend on steady, return

customers, it’s important to stay put.

If you’re one of these, a long-term

lease will allow you to build up a

faithful customer base. Even nonretail tenants may lose business if

suppliers or partners aren’t willing or

able to follow you to new quarters.

• Simplifying the leasing situation.

There’s a lot to be said for long-term

familiarity. Once you and the landlord

get used to each other and establish

workable relations, you’ll be able to

direct attention and energy to your

business. If you frequently start over

with a new landlord, you’ll have to go

through the break-in period all over

again.

• Locking in a good deal. If the space is

desirable, you may want to make sure

that you’ll have it for some years to

come. Ideally, you’ll want to set a

rent that will stay steady as rates

around you rise with the market. Be

forewarned that landlords have a way

of making sure that they, too, reap

the benefits of increased value—it’s

called “rent escalation,” explained in

Chapter 9, and it allows them to raise

the rent as the value of the property

goes up. But even if the lease provides

for increased rents as the years pass



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NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



by, you may still come out ahead

compared to starting anew in a different location.

Of course, there are drawbacks to signing

a multiyear lease. The most obvious is that

you will, indeed, be legally obligated to

lease this space for a considerable length of

time. But keep in mind that even a longterm lease can be quite flexible if it lets

both you and the landlord make adjustments

depending on the success of your business

or the overhead costs of the landlord. Likewise, you can turn a short lease into a long

one by the use of an option to renew. In

Chapter 14, we’ll guide you through the

lease clauses that provide for the growth or

contraction of your lease term.

You’ll get more in the way of improvements with a long-term lease. If you go

for a short-term lease, the landlord probably

won’t do much to fix up the space—maybe

just clean the carpet and slap on a coat of fresh

paint. Any other improvements will probably

have to be done at your expense. With a

longer lease, the landlord is much more likely

to pay for substantial improvements, or at

least pick up a good chunk of the tab.



2. Move-In Date

You may need to set up shop as soon as

possible. If your start-up is ready to roll or

your current lease is up, an immediate

move-in date will be high priority, although



you may have to contend with delays

caused by improvement work. But before

you turn down a great place because it isn’t

instantly available, you might see if there

are any alternatives to fill the gap. For

example, you might be able to work out of

your home or sublet temporary quarters for

a few months; or perhaps you can negotiate with your current landlord for a short

extension. The downside to frequent moves,

however, is that changing your address too

often can confuse and alarm customers.



F. Size and Physical Features

Almost every tenant is concerned about the

size of the rental. You’ll want enough space

but not too much, which would be needlessly expensive. And you’ll want the

space to be well laid-out, comfortable, and

welcoming to employees, clients, and

customers.



1. Size of Space

The amount of space you need may be

very clear to you, or it may be an unknown.

An existing business that’s moving because

its present rental is too small knows with

some certainty how much space it will

need; a new enterprise is less sure.

As you head into your rental search, it’s

important to be as precise as possible

regarding your minimum and maximum

space requirements. Professionals known as



WHAT KIND OF SPACE DO YOU NEED?



“space planners” can help determine how

much square footage you need and how to

use it. (Chapter 3, Section B, discusses

how space planners can help.) When you

combine your present space needs with

your plans for the future (expansion on the

horizon?) and the term, or length, of the

lease you want, you’ll know what to look

for.

Chapter 4 explains in detail how landlords measure square feet. For now, understand that the various ways can result in

significant differences in the amount of

real, usable space. If your space needs are

critical and you need at least a certain

square footage, specify in your list that the

footage must exclude the thickness of interior and exterior walls, elevator shafts, and

other structural aspects of the building.

Don’t leave your estimate of needed

space without considering the possibility

that your business might need less space in

the future, even as it prospers. Is outsourcing on the horizon for you? Think

about the space-saving results of relying on

computer files instead of paper files (no

need for a file room now), or using online

services instead of local resources (do you

need a space for storing books, magazines,

and manuals if they’re available online?), or

using an off-site company to take the place

of your on-site servers (no need for a

server room). Will your need for support

staff diminish as employees become adept

at their own word processing or other computer tasks? With the advent of flex time

and home telecommuting, many businesses



1/ 1 7



find that they need less space than they

originally planned.

It’s expensive to rent space that you

don’t use. Resist the temptation to rent

more space than you need, even if it’s a great

deal, unless you are quite certain that you will

soon grow into it. Getting rid of unneeded

space (subleasing and assessing) is expensive.



2. Interior Needs

The configuration of a rented space is as

important as its overall size. For example,

you may need lots of storage space, private

offices, cubicles, and a few small meeting

rooms; or you may be fine with one open

area that you’ll break up with furniture or

portable partitions. Ceiling height may be

an issue if you have unusual equipment,

and the number and capacity of electrical

outlets or plumbing facilities may be important. You may want to provide kitchen

facilities for employees, a lunchroom or

lounge, or even a shower for those who

want to bike to work or exercise at noon.

Some of these features can be customized

to fit your needs; others (such as ceiling

height) cannot.

Think of your move to new quarters as

an opportunity to streamline the way work

is done and eliminate awkward systems or

configurations. Start by consulting your

employees for their ideas. Everyone in your

business is bound to have an idea of how

things could work better if the operation