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Leasing Checklist

Written by: Start Your Business

Article Overview: In many states, commercial leases are not covered under consumer protection laws that normally safeguard tenant rights. It is assumed that commercial leases are contracts between knowledgeable business people, and therefore less government regulation is needed than in residential leases. Thus it is essential to scrutinize every aspect of the lease and renegotiate unfavorable terms before signing.

Leasing Checklist

Leasing Checklist

In many states, commercial leases are not covered under consumer protection laws that normally safeguard tenant rights. It is assumed that commercial leases are contracts between knowledgeable business people, and therefore less government regulation is needed than in residential leases. Thus it is essential to scrutinize every aspect of the lease and renegotiate unfavorable terms before signing.

Non-Compete Clause

If you run a retail establishment, insist upon a provision that prohibits the landlord from renting space in or near the same retail center to a competitor.

Dispute Resolution

If there is a dispute involving you and the leaser, by what method will it be resolved? Negotiating for mediation or arbitration rather than regular court is usually advantageous.

Spatial Specifications

Exactly how much space is being rented, and which areas are included? It is wise to take a tape measure and confirm the leaser's measurements, as they are often exaggerated. Finding a discrepancy in reported space and actual space is a valuable bargaining tool. Do you have the right to move to another space in the complex if you need more room to expand?

Default and Termination

Under what conditions can either party free themselves from the lease and what notice requirements are needed?

Pets

In an effort to attract skilled employees, more employers are allowing pets in the workplace. Will the leaser permit pets in the space?

Rent

Prices are always negotiable in commercial leases, and may depend greatly on concessions made with regard to other aspects of the lease as well as general market conditions. If options to renew are considered, what rent increases are allowable, and how are they calculated?

Additional Costs

The cost of utilities, taxes, and maintenance are often passed on to the tenant. If you agree to pay them, make certain that your portion is in line with the percentage of the building that you occupy.

Buildouts

Improvements, modifications, and fixtures added to a rental space are called buildouts. Negotiation should include whether these are allowed, which party will pay for them, and who owns them after the lease ends.

Sublease
The term "sublease" refers to a transfer of less than the entire term of the lease. Under a sublease, the subtenant is not directly responsible to the leaser, whose recourse against the subtenant is only through the original tenant. If your business fails or the location doesn't match your needs, do you have the leaser's permission to sublet the space to another party?

Term Options

Many new businesses negotiate a short initial lease with one or more options to renew. Options give you the right to stay by notifying your landlord in writing a certain number of days or months before the lease expires. Landlords may want a higher rent for the renewal period as well as an extra fee in exchange for the option.

Leasing Pitfalls

The following factors may adversely affect the tax status of your leases:

* rental payments that establish equity or lead to a property title,
* rental payments that exceed the fair rental value of the property by a wide margin,
* rental payments that are actually the equivalent of interest on a purchase, and
* when, subsequent to the end of the lease, the option to purchase is exercised at a rate that is quite low in comparison to the actual property value.

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Different Types of Funding - Finance for business can be obtained through a number of different sources. Let's review some of those channels to help you decide what's right for your business needs: Grants There are over 930 different EU and UK grants and loans available from over 100 issuing bodies. This is the cheapest form of finance and an important part of the funding package that companies and individuals need. We can help you find your way through this maze. Technology Micro Projects: 50% of eligible costs up to £20,000 Research project: For a technical and feasibility study of an innovative idea for new technology 60% of costs up to a grant of £75,000. Development project: For development up to pre production 35% of costs up to a grant of £200,000 Developing an innovative idea: valuable for small companies and individuals at the start of a technical project: 75% of costs of hiring a mentor and consultants. 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Overdraft Banks are surprisingly supportive when presented with a well thought through plan and competent management. Bank Loans Lenders tend to look for a good business plan and security. Typically the loan is approved by a centralised back office function rather than the person you meet. Terms and rates depend upon the risk. Repayments can be very flexible to meet your specific needs. Mortgages These can include flexible repayment terms to meet your business needs. This can even be incorporated into your overdraft finance so that you have one flexible account for both personal/ business mortgages and overdraft Small Firms Loan Guarantee Scheme Up to two years trading: Up to £100,000 Over two years trading: Up to £250,000 However these are difficult to obtain and are a loan of last resort. Export Guarantee Scheme This is government backed insurance against appropriate export documentation. Mezzanine This is a halfway house between loan and equity. It can be an innovative way of raising funds for the more established business. Mostly for expansion capital. Equity This is not as easy as the papers would have you know. Only 1% of business plans received by Venture Capital Funds are successful. However, a good business proposition consisting of a strong demand for the product or service, management track record and a sound financial plan will enhance the chance of success. Business Angels These are high net worth individuals who are successful businessmen looking for investment opportunities. They can provide both time expertise and money. Typical investment size is £25,000 to £250,000 but can go as high as £2m for the right opportunity. Exit within 3-5 years. Venture Capital These are investment funds seeking high rates of return. However typically investments are over a million pounds. Some funds are targeted at lower amounts depending upon the sector and region. These funds are looking for exponential capital growth over 3-5 years. Asset backed finance This can cover machinery, sales invoices even sales orders. It can be a very flexible source of finance to the growing business Leasing This will cover your capital expenditure and spread the cost over a three to five year period. It is particularly useful if you do not have taxable profits to maximise your capital allowances. Sale and leaseback of a property you own is another good source of funds. Factoring Factoring offers a sales ledger administration and debt collection service. Up to 95% of an approved sales invoice is paid within 48 hours, quicker if required. Credit protection is also available to protect against a bad debt. The Factor will own and place a first charge over the book debts and they might also take other charges, depending upon the strength of the financial information. 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