Starting a new business is exciting! One of the most exciting pieces is deciding on location. I can not stress enough that you need a lease or a license. It might seem like a wonderful opportunity to rent a small space inside another business without a lease—after all, you have no obligation, so if the business doesn’t do well, you can just walk away. You, however, are not protected, and just like you have no obligation to your new landlord, they have no obligation to you. You could be asked to leave if they decide they need the space or someone else is willing to pay more. This can leave you in a precarious position.
When considering space in an office building, you should be aware that there are different classes of buildings. A, B, C, and “Trophy” buildings have different costs and different amenities. So-called Trophy buildings, such as the Empire State Building in New York City, are not usually something a new business owner is considering but rather something to aspire to. Class A buildings, while perhaps not completely out of reach, tend to be expensive. They do have advantages. Most have excellent HVAC and electrical systems—something to think about if your business is technology driven, which most are these days. They also tend to have nicer common spaces, restrooms and usually food establishments. Class B buildings, while not as fancy, tend to be a bit less expensive and might be a good place to look. Class C buildings can be a good choice if you feel that you want your business to be in a particular location or town and cannot afford to spend on a nicer building in that location.
Leases and Insurance
Other considerations are the terms of your lease and insurance for your premises. You might need malpractice or errors and omissions insurance for your business, and many people are also now getting cyber liability insurance. Most leases will require that you have a minimum of insurance and that you name the landlord as an additional insured.
Commercial Lease Clauses
Other typical clauses in a commercial lease are for holdover rent, if you do not vacate the premises at the end of your lease, as well as a “good guy” clause if you want to vacate early. A “good guy” clause usually makes one member of the business personally liable for the rent, but as long as they are a “good guy” (in other words, give the premises back in good condition and have paid all their rent on time up until the point they want to vacate), the landlord will let them out of the lease. This type of clause benefits the landlord in that if the tenant truly can’t afford to stay any longer they at least do not have to go through the legalities and cost of having them evicted, and they know their unit will not be damaged.
For new businesses just starting out, a popular option is shared workspace. There are many buildings, including class A and some “Trophy” buildings, that have this option. You should be aware however that many of them require a membership, not just space rental. The membership might include items such as telephone answering, internet connection, printer, fax, mail and package service. You should consider that when using this type of membership; the same people working for you are also working for others who may be your competition. If you have a business with ethics rules, as lawyers do, there are also confidentiality requirements that must be taken into consideration. The number one advantage to this type of workspace is cost. Please remember though that once the business can afford to move into its own dedicated space, you may lose some things along the way, such as your telephone number or a favorite receptionist, which depending on your agreement may remain with the shared workspace owner.
Retail Location vs. Office Space
Finally, some businesses are a better fit for retail locations rather than office space. Some considerations are who holds the responsibility for cleaning the sidewalks in the winter and whether there are complimentary businesses located nearby. For instance, would you want to be within walking distance of a school, a hospital, an office building?
When considering renting space for your business it is always a good idea to have an attorney review and possibly negotiate the terms of the lease prior to signing.