When you’re signing a commercial lease, there is a degree of unknown, unstated financial risk. As commercial tenants enter into new leases, they can be unaware of the implications of unfamiliar lease terms on potential future expenses. A little bit of pre-lease-signing awareness can help lessees understand existing conditions, create the opportunity to identify and shift responsibility for faulty existing conditions, make sure repairs are made well before you’re open for business, and help mitigate blowing the budget.
Existing Conditions
Understanding basic existing conditions, recognizing their terms within your lease agreement, and consulting with inspection specialists on the front end of your tenant improvement project will help you avoid surprise holdups and costs.
Infrastructure
The infrastructure of your leased space includes mechanical, electrical, and plumbing systems. The infrastructure of a building represents the most expensive component of construction and maintenance. Find out if proprietorship for these systems is in your lease. For example, if you find out the HVAC unit (new HVAC units could cost $20,000 or more per unit) is on its last leg one month after signing, and requires major repairs or replacement, are you responsible for paying for that, or is your landlord? A commercial general contractor can inspect your space and provide you with a report of existing building conditions.
Hazardous Materials
Any building older than 10 years is at risk for having unabated hazardous materials like lead, asbestos, or mold, as part of its structural makeup. Since these materials can negatively affect the health of tenants, workers, and clients, there are certain safety codes in place. Editing of your planned construction process may be necessary in order to deal with the hazardous materials by working around or removing them and could double your costs, so meet with a qualified hazardous materials inspection company so you know exactly what you’ll be dealing with regarding the space you choose.
Parking
Every business has to meet requirements for a certain amount of available parking, and a newly leased space may already be near or exceeding its capacity and may require parking lot additions or upgrades. Your landlord may be unwilling to pay for these upgrades or even unaware that they’re necessary. Ask about current and future requirements, ADA compliance and wheelchair access regulations, as codes are always being updated.
Accessibility and ADA Compliance
Accessibility requirements are state-regulated and include building codes for wheelchair access ramps, staircases, elevators, floor elevation, and restroom footprint and layout. New and existing spaces alike have to be brought up to current code with every new proprietor. Hire an accessibility specialist for a full building analysis before signing.
Roof Condition
Leaks, water damage, and mold damage can cost tens of thousands of dollars in repair and major disruption to your business. Order a roofing inspection first.
Neighboring Tenants
Consider the relationship between your space and those of your neighbors. Will you be sharing a building, parking lot, walls with your community members? Sensitivities can arise over sounds and smells, and client demographics, which could lead to costly reconstruction, litigation or relocation. Are you opening a day spa next to a biker bar? Meet your neighbors and determine beforehand who is in the neighborhood and what lease restrictions or terms might already be in place.
Lease Terms
All leases should include some landlord-mandated construction guidelines, and some landlords will present you with lengthy leases with strict criteria for construction methods and procedures which can drive your costs up. For example, some agreements will mandate union labor requirements, special insurance, or even night construction work to avoid daytime business interruptions for neighboring tenants. Get clear with your landlord on contracted requirements and cost implications before signing.
There is not always an advocate for the lessee in the lease negotiation process. Hiring a design-build general contractor to help guide you can save tens or even hundreds of thousands of dollars. A good design-build contractor will offer consulting on the front end of your lease or buying decision to help safeguard your investment and make the best decision for your business. Here at APS, commercial site evaluations are a part of the services we offer. Find out how we can help build your dreams!
APSGC: Evaluating Hidden Costs on Your Commercial Property
