Consider whether to lease or buy commercial space for your business

On behalf of Patrick Burns

Recently, the Minneapolis-St. Paul Business Journal reported on plans to redevelop a 100 acre site in Woodbury purchased from State Farm Insurance. The new development-dubbed CityPlace-will have 300,000 feet of retail space for restaurants and shops. Several national retailers have reportedly already entered into commercial lease agreements for CityPlace. From all indications, CityPlace will be an upscale development offering significant amenities for restaurant and store owners.

According to the Small Business Administration, leasing commercial space is one of the largest expenses incurred by new and expanding businesses in the United States. For those with a new or expanding business, one important consideration is whether you want to lease or buy commercial space.

The Intuit Quickbooks website notes that leasing has its benefits over buying. First, in leasing property as the site for your business, no down payment is required as would be true if you were buying property. Instead of tying up a significant amount of money in a hefty down payment, leasing allows you to invest that capital in the business itself. Second, if you anticipate the distinct possibility of a growing business, leasing would allow you to move to new premises once your lease is up in a few years without the risk of feeling tied down to property you already own.

There are two major benefits in buying property as the site for your business. First, purchasing a tract of property is an investment which, hopefully, will pay off handsomely in the long run if property prices go up. Second, if you own your own property, you have control over what you can do with the property and how you do it since there will be no pesky landlord rules and regulations to worry about. If you want to make changes, improvements or modifications to the property in order to better serve your business needs, you can do so without asking permission from a landlord.

Negotiating

Many new businesses simply cannot afford to buy property outright in order to set up shop. For many small businesses, leasing is the only viable option. After finding a suitable location for a business, the hard part is often negotiating the lease. One should be prepared to walk away from a potentially bad lease if the landlord shows inflexibility during negotiations. Before signing any lease, the Small Business Administration strongly advises that you hire an attorney who specializes in commercial real estate in order to have someone “walk you through the clauses and fine print.” The old adage “the devil is in the details” most certainly applies to commercial leases.

According to the SBA, you might want to consider insisting on lease provisions that will protect your business interests. For example, you might want to insist upon including in the lease a provision allowing you to sublet your space to another business if you want to move. Another provision worth having in a lease is an exclusivity clause which prevents a landlord from leasing other nearby spaces to a direct competitor. Finally, you might wish to request a lease provision stating that, if a major anchor tenant closes its business, you have the right to break your lease if the landlord cannot replace that anchor tenant within a specified time period.

Seek legal advice

Those who are contemplating entering into a lease for commercial space should contact a Minnesota attorney experienced in handling landlord and tenant matters. The attorney can review the lease for you and advise you if any potential problems are discovered.