Leasing an Office: Everything You Need to Know
Leasing an office is the process of renting a space for your business, it involves identifying your business's need and executing a lease agreement.3 min read
Leasing an office is the process of renting a space for your business. Leasing an office typically involves identifying your business's needs, estimating your budget, finding a suitable space, deciding on the type of lease, negotiating a deal, and executing a lease agreement.
The Benefits of Leasing Office Space
- Leasing is cheaper than buying a property.
- Leasing requires lower maintenance.
- Leasing offers more options than buying a property.
The Disadvantages of Leasing Office Space
- Leasing is less flexible since you must commit for the entire term of the lease.
- You don't get any ownership rights in the property.
- Involves an element of instability since you don't have any control over the property.
Steps Involved in Leasing an Office
1. Define Your Business Needs
The first step while leasing an office is to identify your business needs. Keep the potential growth of your company in mind while evaluating the type and size of the space you need.
- Evaluate the amount of space your business needs based upon the number of employees and type of business operations. Usually, a normal employee will require a minimum of 75 square feet, whereas a management-level employee with a dedicated work space will need somewhere around 150 to 400 square feet of space.
- Consider the needs of your clients and employees. These may include interior layout, canteen area, conference halls, parking lot, meeting rooms, recreational space, etc.
- Determine your location requirements considering easy accessibility, proximity, and convenience of your clients, employees, and suppliers.
- Identify the ideal class of building for your business. Depending upon its age, structure, amenities, and tenants, there are basically three classes of commercial buildings. Class A buildings are of top-most quality. Most of them are newly constructed, well-managed, and occupied by high-profile tenants. Class B buildings are little older and are usually constructed specifically for the purpose of letting out for business. Class C buildings are the oldest and cheapest of all the three classes. They are located away from business center and they require extensive maintenance.
2. Estimate the Budgeted Cost
- Find out the average rent per square foot of space in your target area.
- Compute the monthly rent by multiplying it with the amount of space you need.
- Add maintenance fees for common areas like lobby and hallways. These fees usually range from 15 to 35 percent of the amount of lease.
- Add monthly utility costs. The average electricity cost per month for office buildings would be around $1.34 per square foot.
- Review your records to get a realistic budget.
3. Find a Suitable Office Space
Hire a tenant-broker to help you find an ideal office space for your business. Unlike listing agents, who act in the interest of landlords, tenant-brokers represent the interests of tenants. Hiring a commercial broker offers the following advantages:
- A broker will have better knowledge of the local area. He may even know some of the potential landlords personally.
- A broker may be aware of properties that are not yet listed publicly or properties that are likely to become available soon. This increases your chances of getting hold of properties that are in demand before they become officially available.
- A broker can help you understand and negotiate the terms of lease.
- A broker helps you save time consumed in touring, finding, and researching office buildings to meet your desired parameters.
You can also use rental listing websites to find commercial properties in your area. Most of these websites let you filter and sort properties based on locality, size, and price.
4. Research the Available Spaces
Visit the shortlisted spaces and conduct further research to narrow down your options. Among others, you should consider the following aspects:
- Surrounding area
- Ease of access
- Security features
- Age of the building and related infrastructure like plumbing, heating, air-conditioning, etc.
- Available amenities
- Other occupants of the building
- Parking facility
5. Asses Your Financials
- Prepare your financial documents.
- Know your credit score.
- Contact your acquaintances for reference.
- Be ready to issue a personal guarantee.
6. Negotiate Your Lease
Decide whether you need a full service lease (all-inclusive lease), net lease (only usual costs are included, e.g., property tax and common area maintenance fees), or modified gross lease (you must pay property tax, maintenance fees, etc. in addition to the rent).
Consider the following factors while negotiating a lease:
- Base rent
- Length of the lease
- Credits for renovation and other improvements to the property
- Future increments in rent
If you need help with leasing an office, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.