To Lease Or Not To Lease

When you have finally decided what your business will be, what type of organization you will have (sole proprietorship, partnership, or corporation), and where you want your business to be located, the real work begins. You must now decide whether or not to lease or buy property. There are several factors to consider when determining which route you should take.

Of course, perhaps the biggest factor to consider is MONEY. It takes a lot of money or credit to purchase a building; money that could be used to purchase inventory, pay employees, or help you out during the slow times. But if you cannot afford or don’t want to purchase a building, the next option is to lease the property.

A lease is nothing more than a contract between an owner of real estate and the tenant. In legal jargon, the owner is called the lessor and the tenant is called the lessee. A lease is usually for a specified amount of time. The lease specifies how much the lessee will pay for the use of the property. There are several other stipulations that leases cover, such as what type of business can be on the property, who pays for repairs, when the rent is due, who pays the taxes, and many other aspects to a lease.

In most states, for a lease to be enforceable, it must be written and signed by both the lessor and the lessee. A verbal lease for one year or less may be enforceable, but it is better if all leases are written down. There should not be any disputes if the lease is in writing.

One type of lease that most retail stores use is a Net, Net, Net or NNN lease, also known as triple net leases. This means that the tenant will pay the taxes, insurance, utilities, and repairs. In a triple net lease, the tenant pays all expenses associated with the piece of property that is leased.

In any long-term lease, you should hire a lawyer to help you to negotiate the lease. Leases are not static; in other words, changes can be negotiated. Length of time, who pays for what expenses, amount of the rent, and what day the rent is due are all items that can be negotiated.

The first lease should never be more than a year in any small business. There are several factors to consider. Your business may not be successful in this location, and you do not want to be stuck in a lease that you cannot pay. A short lease also provides the opportunity to find out that you may need more space than you originally anticipated. If you are involved in a longer lease, you may not be able to expand when it is necessary.

Before considering signing any lease, talk to other tenants in the area about the amount of rent that is usually paid. Rent varies tremendously in certain areas, and you do not want to pay more for your lease than is typical for the area.

Signing a lease is a huge commitment. Do not take this step lightly. Check out the area that you want to be in. Ask questions of other business owners about the area. Talk with the people that will be shopping with you. In essence, “Do Your Homework.” Remember that if the location that you want does not feel right, it probably is not right.

This is your business; so do not let others try to convince you that this is the right place. You make the decision because you are the one that will pay the bills.