What to consider before signing an office lease

Are you looking for a new office lease to base your business from? Beware that real estate costs can typically be the second largest expense after wages that a small business will face. So it makes sense to do all you can to get this decision right. Below are some considerations for you to bear in mind, especially if you are planning to “do it yourself” and not hire a lawyer or other professional to assist you.

1. Consider cheaper alternatives

Do you even need to lease your own office space? There are other, cheaper alternatives, such as:

  • Paying for a “virtual office” with a city “address,” virtual assistant and shared boardroom which you pay for only when you need it
  • Sub-leasing part of a floor in a building with other businesses

2. Give yourself plenty of time to find space and negotiate a lease

This is a simple tip, but can often be the most powerful and yet the most overlooked – give yourself plenty of time. If you are a smaller business, you don’t always have strong bargaining power. However, having a lot of time to negotiate will maximise your bargaining power. That’s because if you are offered a deal that does not suit you, you will have time to walk away and go to another property. If you leave it too late, you could be stuck.

3. Research the current market rentals and incentives

Go online and look at what is currently for lease in the locality you are interested in. Speak to agents about the market rent and incentives for premises in your chosen location. Incentives can be things like rent-free periods or a financial contribution from the landlord towards your fit out. You should also speak to your accountant or financial advisor about the accounting treatment for any incentives you are offered.

4. Negotiate a heads of agreement in writing and seek legal and/or commercial advice

A Heads of Agreement (also known as Commercial Terms) is a short document, usually two to five pages, which lists of all of the key things you want the lease to stipulate. This is a critical step if you want to ensure you get a great deal, and not just on rent and incentives. It can cover other things like hidden charges in the lease and who is responsible for repairs and maintenance. Seek legal advice or commercial advice before you sign the heads of agreement, not afterwards. These professionals will think of things that you haven’t considered.

Good luck with your office leasing journey and stay informed!

Rebecca Khair, www.leaseexpert.com.au

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