TIPS on negotiating a lease to create a cowork space

[bruce edward whitaker]

We are about to put in an offer on a vacant space to house a new
coworking group. Any and all items to include in the offer would be
very much appreciated. Some that I can think of:

- length of lease (1 or 2 years).
- is insurance included and what does it include?
- what about taxes and utilities.
- improvements to be included.
- months of free rent.
- security of location.
- etc., etc.

Even better if anyone has a lease I would love to see it.

Hoping everyone is well today.

Bruce

[rachel young]

Hi Bruce,

If you are moving into a space where there are other units, consider asking to add in a clause that give you first right of refusal should another adjacent space nearby becomes available. It came in handy for us and we were able to expand to another floor. 

r.

____________________
rachel young
rac...@camaraderie.ca

Bruce

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[Joshua Marpet]

doing this on my phone sorry. Lookup triple net single net and gross lease understand what the differences are

[bruce edward Whitaker]

What term of lease have most of your signed?
Rachel's point is a great one as we just found out the space next to us will be available soon.
Thanks all. Will let you know how it goes.

Bruce

[Angel Kwiatkowski]

Best if you have a commercial Realtor. It's never too late to get one
to help with your lease negotiations.

- length of lease (1 or 2 years).

I think a new space should try to get as short as possible. Our first
2 leases were each 1 year. Now that we're more established, we are on
a 2 year.

- is insurance included and what does it include?

You'll likely need to get your own insurance to cover your belongings
in the space. You can also have your members who leave property in the
space get their own renter's insurance

- what about taxes and utilities.

You'll need to be real clear about what extras you have to pay on top
of rent. I've been lucky to get a "Gross" lease each time which means
I write one check each month and it includes, rent, utilities etc
except internet which we pay for separately. A NNN lease can be a
nightmare especially if they don't have an accurate estimate of what
heat/gas/electric/water/trash might cost each month. A NNN lease can
add almost 50% extra to the price of your monthly rent. Landlords also
pass their property taxes and building improvements on to you in a NNN
so they make me real nervous most times.

- improvements to be included.

Yes, you'll need to make sure that each party's responsibilities are
fairly and accurately represented. What out for phrases like "tenant
will pay for any repairs or maintenance on plumbing, heating,
electric." <----also a crappy part of NNN leases.

- months of free rent.

Of course.
- security of location.
Try to get your landlord to buy the access system that you choose for
the building. You likely won't take it with you when you leave. My new
landlord threw down $2,000 for our electronic locks b/c he knows he'll
keep them if we leave and it makes his property management easier with
multiple tenants.
- etc., etc.

Long story short--get a commercial Realtor. You won't pay them
anything, the landlord will :)

On Jan 17, 2:43 pm, bruce edward whitaker <bwhitty...@gmail.com>
wrote:

[Bruce Yang]

In regards to leases, wouldn't it be better to get a longer term lease?

Let's say you get a 1 year lease at $40sf. Then a year passes and market rates go up to $43, then $45 etc. That can have a very real and huge impact on your space. the economics rapidly change with even a few dollars per sf change.

Invesment: Let's assume you spend $20K on furnishing your new coworking space. There is almost no way you can earn back that amount in the first year. If you have to move after 1 year, you have to start all over.

A good reason to get a short lease is If you have put a personal guarantee on the lease... That's scary and a 1 yr lease lessens your liability.

Try to get a full service lease. That simplifies planning by a lot. You basically pay 1 amount for "everything".

Also don't forget to consider security deposit. For a company with no operating history and no assets, a landlord might ask for 6 months security deposit. A sublease might ask for 1-3 months.

I'm curious about months of free rent. Is this normal? How many free months did you guys get?

Bruce

[bruce edward Whitaker]

Thank you all. Wonderful advice!

We have been offered 3 months free rent because of the situation of the landlord - the space is above an old railroad station and hasn't been rented for almost two years. I am thinking that we can propose a 1 year lease and keep the 2 year as a back-up to get more favorable pricing.

As for an investment in furnishing the workspace, we are entering into an agreement with the local municipality/economic development and a government funding source for corporate memberships allowing them to use the space within defined parameters. This way we don't have a loan and can get recurring rent from them each year.

Like your idea of a full service lease making the prediction of cash flows that much easier.

Also appreciate the comment around security for the doors.

Will also factor in the security deposit. Thanks.

Does anyone have a lease template as the landlord has asked me to make an offer?

Bruce

[Mark Gilbreath]

Bruce

At this stage of your space negotiation, where the landlord has asked you to "make an offer", I would HIGHLY recommend (as Angel did as well) that you enlist the assistance of a commercial real estate broker, either as an advisor on the side or as your representative in the negotiations.  Your landlord is expert at this.  You should bring expertise to the table as well to protect your interest.

Also, let me bring back up a lease strategy that I've mentioned to the group a couple time in the past: a "participating lease".   The idea of a participating lease is that your total monthly payment is comprised of a base rent + a participation amount, which can be a % of your income or profit.   The principle behind this is that your ability to pay rent improves as your business/membership grows - this helps you reduce your risk at the front end and requires your landlord to have a vested interest in your success as well. This type of lease structure is very typical in restaurants where a property owner may seek to bring a restaurant to their development to drive traffic/ "value-add" the rest of the development (picture a condo complex with restaurant space on the ground floor).  This type of lease structure has also become the norm with established Office Business Center operators, who succeed in convincing the landlord that they will bring foot traffic and vitality to a building.  I think the case can and should be made that coworking is great for a local community... so would encourage you to consider this in your negotiations.

Best

Mark

Mark Gilbreath 

LiquidSpace
CEO/Founder/deckhand 

mobile   208.720.8107
email     ma...@liquidspace.com
skype    mfgilbreath
twitter    markgilbreath

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[Jerome Chang]

In broker terms, free rent is "rent abatement".  Rent abatement, [less] security deposit, TI [tenant improvement] allowance, etc. are all "lease concessions".  All those are just different ways you can generate favorable lease terms.  Some landlords are more willing to give cash equivalent terms (ie., rent abatement) than actual cash (ie., TI allowance).  A broker will sniff out those motivations.

Jerome

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[bruce edward Whitaker]

Thanks all. Your euggestions are excellent ones.

One additional question, have any of you considered exchanges whereby someone may be willing to exchange their home + working space for a period of time?

[Bruce Yang]

Can you elaborate on what you mean by 'exchanging their home'?  Would they uh... I give up.