It’s an exciting time when your startup is ready to move out of the bonus room. But whether you’re looking for office space or manufacturing and warehouse space, the world of leasing can be overwhelming. In this post, we’re sharing a few tips that will make leasing space for your startup less intimidating.
Consider Your Options
First, it’s important to know that you have options. There’s no one right way to go about getting space. Here are several options to consider.
1. Distributed Team
Do you really need a separate office space? If most or all your team is distributed, and if you’re creating knowledge products or services, you may not need a central office space at all. Many founders look at moving into a formal office space as a milestone achievement, but there are plenty of companies that have no central office — including Zapier, Toggl, and Basecamp. If your team is spread out across the country (or the globe), you may consider allocating a budget for each team member to join a coworking space wherever they’re located.
2. Coworking Space
Coworking spaces come in a variety of types, from office space to manufacturing space. And they provide many benefits to startups. Being in a shared space with other startups allows you to interact with your peers and build valuable relationships. And coworking spaces come with a variety of amenities, including high-speed internet, janitorial service, copier/scanner equipment, and other things that you’d otherwise have to arrange and pay for separately.
One of the most beneficial advantages of coworking space is the ability to scale up or down easily. Most coworking spaces offer tiered memberships that range from individual desks to small dedicated offices to large suites. And because there are no long-term commitments required, unlike with traditional leases, you can move between levels as needed.
3. Traditional Lease
Sometimes, a traditional lease will make the most sense for a startup. If you know you’ll be scaling quickly and you want to lock in a good rate for a longer term, or if you need a type of space that’s not available in a coworking arrangement, a traditional lease may be the best choice.
How to Know Which Option for Leasing Space is Right for You
Which option for leasing space is right for you depends on your current situation, your business model, your plans to scale, and other factors. Here’s what to take into account when trying to decide.
Location — Where do you desire to be located? Are you trying to attract talent who will appreciate being in the center of downtown’s amenities?
Size — How much space do you need now? How much space will you need in a year or three years?
Flexibility — How confident are you in your growth and cash flow projections? Would you benefit from a short-term commitment that gives you the ability to scale up or down as needed?
Budget — What can you comfortably afford? You don’t want to be worried about your ability to pay the rent each month.
Evaluate the Lease
Educating yourself on the ins and outs of leases will help you make the right choice and ensure you don’t agree to unfavorable terms. If you choose to go this route, it’s a good idea to consult with an attorney who is familiar with commercial lease contracts. Here are a few questions to ask yourself, and to run by your attorney before you sign on the dotted line.
- What’s included in the base rent? (And what isn’t?) Find out if you’ll need to pay additional fees for parking, utilities, renter’s insurance, maintenance, etc.
- What are the upfront costs in addition to the base rent? Many lease agreements make renters responsible for a deposit and attorney’s fees. You may also have to pay for any improvements you want to make to the building unless you negotiate these into the lease.
- Who’s responsible for repairs? What happens if a roof needs replaced or if the HVAC goes out? If the lease makes you responsible for covering these costs, you’ll want to negotiate this clause or budget for it.
- Will you face a rate increase during the lease term? Look for an “escalation clause” in the lease, which indicates how and when rent may increase. Be sure that you know exactly what governs rent increases if this clause is in the lease.
- Is subleasing an option? You may want to have the ability to sublease your space if your startup doesn’t grow as quickly as you expected (or if you grow more quickly and need to move to a larger space!). Find out if you can sublease part or all of the space.
- What happens in the case of a landlord’s bankruptcy? Make sure there’s a provision for what happens if your landlord goes bankrupt. You don’t want to be suddenly scrambling to find a new space.
Negotiate the Lease
Remember that you can always negotiate a lease if the terms are unfavorable. Unless you want to be in a highly desirable area that’s lacking in available space, the chances are high that lessors will be willing to negotiate. Even a coworking space may be willing to make exceptions if they’re having trouble filling their space. Again, having an attorney to guide you through this process is valuable.
Lease to Grow Sustainably
When leasing space, it’s helpful to keep in mind that the point of leasing is to give your company the optimal ability to grow sustainably. Once you know your goals in terms of the talent you want to attract, the location that would best serve your business, your cash flow, and revenue, the decision of what type of space and the lease you need will become clearer.
Learn about NEXT’s facilities for office and manufacturing spaces!