Signing up for a commercial lease is the most complex financial commitment made by any entrepreneur. With the passage of time, leasing a commercial real estate activity has become even more strenuous. Thus, the corporate tenants must not refrain from asking any number of questions from the commercial landlord while leasing a property.
Before negotiating the lease, it is of paramount importance for the corporate tenants to consider their financial position and evaluate their requirements accordingly. Corporate tenants must also make sure that the lease terms align with their long-term business strategy. It’s always wise to plan for the future – for both good and bad times. Thus, lease terms must be flexible enough to have provisions for both. In case the business succeeds, the lease term must have an option for expansion and if it doesn’t, the lease terms must also have an option to counter any sort of uncertainty. It is vital to note that leasing a commercial real estate space is more difficult compared to leasing an apartment. A large number of commercial tenants end up getting into trouble in the later stage by not asking the requisite questions and taking the process lightly. To safeguard the corporate tenants from making costly errors while leasing commercial real estate, we have compiled a list of common gaffes they should avoid making it a win-win situation.
Here are Top 7 mistakes corporate tenants make while leasing commercial real estate –
Not Understanding the Lease Terms
It is always advisable to not sign a commercial lease agreement until you read & understand all the terms & conditions. This practice will allow corporate tenants to avoid any potential conflict with the stakeholders such as: landlords, agents, or other tenants in the property. Usually, several corporate tenants find it challenging to comprehend the legal language or jargon used in the agreement. To counter this situation, they must hire an experienced attorney who can provide them clarity on the type of lease term they are signing up for, the frequency & nature of rent increase, subletting obligations, and provisions related to repair & maintenance.
Most of the landlords design the lease agreements which favor them or according to their interest. Thus, hiring an attorney becomes crucial to ensure the interests of the corporate tenants are not compromised. Negotiation is a very integral aspect while signing a commercial lease agreement. If the tenants come across any type of condition to which they don’t agree, they should negotiate with the landlord to get a fair deal that is in line with their business requirements.
Not Planning Effectively
It might be surprising for many people to learn that most of the firms don’t have an idea about their exact space requirements. At times, tenants are also subjected to unforeseen circumstances which change their space requirements swiftly. The right property manager or expert can guide the corporate tenants in evaluating their exact space requirements. They can also forecast the dynamic space requirement of the tenants based on the current & future business climate. A property manager can also assist the corporate tenants in planning for any unforeseen circumstances such as – in case of outgrowing the space requirement before the lease expires or during the phase of downsizing.
Not Conducting Preliminary Research
Many corporate tenants often lack in resources or expertise required to conduct preliminary research to analyze which commercial property will be the best fit for them to lease. They also procrastinate from spending time to search for the best property options, secure legitimate financing from financial institutions, negotiate the terms of the lease, and analyze the rentals.
It will surely pay you either today or in the future. While shortlisting the property it is fundamental to start your search process 12 months before your existing lease expires. Negligence shown during this process can result in signing up for higher lease terms for less space.
Lack of Inspection
Many corporate tenants make this common mistake of shortlisting a commercial property in a rush as they are in rush to start their business. They often forget to conduct a detailed inspection of the property which costs them dearly in the later stage.
While shortlisting any property, it is pivotal to check the condition of every part of the property, lighting, flooring, HVAC, and every minor snag and get it repaired from the owner before commencing the business. Identifying these snags in the later stage might cost thousands of dirhams which will hurt the cash flows of the corporate tenants.
To know more about how Kaizen performs inspection and ensure an impeccable handover, read our case study – ‘The Ideal Property Handover Process’
Prioritizing Price over the Location
Many corporate tenants make this common mistake of shortlisting the commercial property only based on its rent and ignore other important factors such as: location, accessibility, presence of basic amenities, infrastructure, closeness to competition, and versatility of the office space. They believe that they should choose those commercial properties with lower rents as rent is a fixed cost and must be kept minimal. However, that notion is miles away from the truth.
Prioritizing a commercial property based only on the rent while ignoring other important factors often leads to choosing an unfavorable location. This results in ineffective targeting of the customers & hefty business losses. Thus, is of utmost importance for every business to be there where its potential customers are.
Not Considering the Future Requirements
A vast majority of corporate tenants often make the mistake of not considering their future requirements while leasing commercial real estate. What if their business succeeds and their requirements for space increase or vice-versa. Terms of the lease must always align well with the future prospects of the business to avoid any trouble in the future.
Not Hiring a Property Management Firm
Unless you are an expert in the leasing space with years of experience, it is always advisable to hire an experienced property management firm that possesses knowledge of the prevailing market situation and future trends. Property management firms can play an integral role in negotiating the lease terms to your advantage. To know more about the factors to be considered while hiring a property management firm, read our blog – ‘Key Factors to Consider When Choosing Property Management Firm’
Kaizen AMS – a tech-enabled property management firm in Dubai, possesses over 15 years of experience in serving some of the biggest corporates in Dubai on leasing commercial space or property.
The key highlights of the services offered by Kaizen AMS to the corporate tenants under commercial real estate leasing include-
- Representing the client as its non-exclusive leasing agent and act as the representative in identifying and securing suitable tenants.
- Managing, tracking lease critical dates, options, and renewals
- Leasing collection, monitoring, and enforcing client/tenant performance against lease commitments.
- Conducting full tenant profile verification (KYC)
- Managing the registration of the lease agreements, assisting tenants with Municipality processes and certificates (Ejari, etc.)
- Always read the lease terms thoroughly
- Wisely plan your space requirements
- Do in-depth research on the pros & cons of the property you are leasing
- Ensure your commercial property is well-inspected before you shift
- Prioritize the location over rents
- Always make your decision based on the future requirements
and the most important point to remember is –
- Always remember to hire the expert that can save you from making costly mistakes –because ‘One Stich at right time saves another nine’
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