Monday, April 22, 2013

17 Items you should consider when you are thinking of leasing business commercial space

I am mainly a residential real estate agent.

I had a client looking for commercial space to open up a small bakery store and was considering a commercial location to rent.

These were some of my thoughts and experience and items to watch out for when considering a commercial lease.
  
  1. rent is usually charged as per square foot of total space plus TMI
  2. TMI is taxes, maintenance and insurance (building)
  3. TMI is typically more than the rent, meaning that the rent may be $4/square foot but the TMI is $8 extra, this is not always the case, but I've seen this often, cheap rent, high TMI
  4. typically, you will need to install all interiors, from the electrical panel to the ovens and vent hoods and bathroom and even the walls, many people when they leave an existing commercial rental space, take everything
  5. you will need permits for everything you do in a commercial installation, from the outside bent hoods for your ovens, to the lighting and sinks and whatever, you will require all professional trades to do all the work and approve everything with the municipality and meet all codes, your landlord and municipality don't want you burning down the building when you cook or overnight due to shoddy work, so they want it done right
  6. the landlord must approve all your renovations, inside and outside and will have restrictions on signage etc
  7. the landlord will also have clauses in the lease that will only allow you to sell or make or bake certain items
  8. typical commercial leases will also have a non-competition clause section where you can only bake your cakes and cupcakes etc. but you can't sell cigarettes or maybe coffee or pop or something that someone else in the strip plaza or building could or does sell
  9. all commercial leases allow for the landlord to lock you out and seize all your goods and chattels and everything inside your business if you default on the rent (this is NOT allowed in residential leases in Ontario)
  10. commercial leases are typically 5+5, meaning you sign a 5 year lease with the option of 5 more years - you want this, because if you become successful, you don't want to be thrown out after the first 5 years of hard work AND you don't want your rent tripling in the last 5 years because your business has done so well
  11. you will most likely be required to provide an entire business plan with everything in your business sales, installation, all costs and expenses, advertising, floor plans, the entire enchilada before the landlord will accept you - reason is that that commercial leases are far different than residential, they don't want to lease to you and then have you go belly up in 6 months because the landlord doesn't want to lock the doors and sell your stuff, they want you to survive, flourish and be successful so that they get your rent for 5+5 years AND you make the plaza, building look good
  12. You need to know to lease commercial space like the rent commitment, plus other costs per month
  13. what it would cost to put in what you need like the oven and sometimes the landlord will help with this, but you need to ask if  the landlord help with that
  14. I strongly suggest you go to RBC at 33 City Centre in Mississauga and speak with the business development branch of the RBC, they have tons and tons of information that will help you develop a business plan
  15. to go about finding a reputable commercial agent that will answer your initial questions before actually going to see places will be difficult. 
  16. You need to gather all this information beforehand so you know exactly what you are getting into
  17. There is a very high cost to start up a business like this, just make sure you know everything before you do anything
     
     
I'm a very optimistic person, but I am also a realist and extremely skeptical of everything and anything when it comes to spending money. 
 
You must be extremely careful in this. You could spend a year researching and investigating how to start up a business online and with the help of banks and others.  I'm not negative, but I think I just read in a real estate publication that 19 of 20 restaurants fail in the first year and more than half of all new business ventures failed by the end of the third year - cash flow from your personal savings, the banks loan or from sales are most critical in first year and too many people don't estimate the costs in the first year and end up closing shop because of poor planning - as I tell everyone who will listen to me -  "if you fail to plan, you plan to fail" -  I hope that your business flourishes! :-)

There are many other considerations too, but this is a start.

I would recommend you look for a suitable space that you 'think' you might like, contact the listing agent on the mls and gather as much information about their particular listing, the restrictions etc. to see what they tell you.

You can use the ici search tool, http://www.icx.ca/index.aspx?cul=1


I hope this helps

Please let me know if you have more questions or more specific items you want to know.

Thanks
Mark

No comments:

Post a comment