Congratulations. Accelerating sales have driven your young company toward an important crossroad. You need more space. You have found a commercial location that satisfies all your requirements and now you are getting ready to sign a lease. Remember to plan ahead so you can negotiate a tenant improvement allowance that will satisfy your needs. Here is how you can be prepared to secure the best deal for your company.
Take a second “walk through.”
Obviously, you walked through the space. Now you need to conduct a mental “walk through.” Take a moment to walk through a typical day in the life of your operation. Think of the hundreds of processes, large and small, which your team grinds out from the moment coffee is turned on in the morning to when the lights are snapped off at night. Are there enough bathrooms, windows, and “hang out” spaces? Don’t overlook the operations that continue overnight. Map out an outline of what you need to fully maximize productivity in this new space.
Identify technology needs.
As you think through your requirements, think beyond painting, flooring or moving walls. Often, modifications to accommodate your technology needs can be treated as “tenant improvements,” or “leasehold improvements,” and therefore can be rolled into the lease agreement as the landlord’s responsibility. Scope out the cabling, power, and ventilation and special workplaces you’ll need. Negotiate to fit these items within the definition of “tenant improvements.”
Negotiate Tenant Improvement Allowance.
Tenant improvements provide you with an opportunity to upgrade the space. The landlord will likely offer a dollar figure per square foot or some other allowance to make improvements. Go into lease negotiations with a well thought-out game plan of what you need.
Your best hope is that the landlord will pick up the full cost of improvements. If not, try to have the landlord pay as much as possible through the tenant improvement allowance.
If there is a gap between what the landlord is willing to pay and the full cost, the landlord may actually be interested in financing it by rolling it into the rent that you are paying. It may help them by showing higher comparable rents. Along with upgrading the quality of the property, it may strengthen the landlord’s negotiating power with other tenants.
The motivation for you as the renter? The landlord may be an easier source of capital than a bank. The landlord will not be looking for a separate application nor additional collateral.
All of these items will be included within the “Work Letter” portion of the Lease, which needs to be carefully negotiated and drafted.
Acquiring new space marks an important milestone in your company’s progress. Filling the space with an infrastructure that matches your needs will smooth the path toward continued growth.