Forums: Discussions for entrepreneurs and small business.

Good morning group,

This is my first post here in a long time, but I have a questions around leasing space and buildout costs.

I've started looking for space for my new non-profit corporation.  We're looking for a pretty basic secure warehouse space, 4 walls, basic electrical and water access.  We have no special needs.  One space that we were particularly interested in was an unfinished warehouse space of about 1500 square feet in a storage facility.  It was a great location, attached apartment, and nice secured/fenced property.  After talking with the landlord, everything seemed pretty good.  However, when he contacted me back with details, he was asking $12,000 for buildout costs to bring the space up to code (nothing more than drywalling, insulating, adding a drop tile ceiling and installing 120 V electrical circuits throughout.)  But hey, because he was a nice guy, he was willing to include that cost in increased rent for the FIVE YEAR lease he wanted us to sign. (What kind of startup signs a 5 year lease?!?!)

I was under the impression that in most cases, landlords take responsibility for buildout costs to bring a property up to code, and the tenant generally is responsible for any special needs of the business.  Is this the case or are my expectations unreasonable?  It seems to me that these folks are trying to get us to pay to develop their property.    Just trying to get some feedback as to whether I'm nuts or these folks are before I respond to them.

Thanks!

Chris

There are no hard and fast rules on who pays buildout costs. I've seen everything from the tenant paying for everything to the landlord paying and everything in between. However, since these things are to bring the property up to code, I would insist that it be done by the landlord.

In the current market, my advice is keep looking! You may also find that a real estate agent that specializes in the commercial market can be a big help, both with locating a property and negotiating with the landlord.

Best regards,

Molly Donaldson

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Start Here. Go Far. LaunchX

First, why do you need your own warehouse as apposed to leasing space in an existing warehouse.  There are many Third Party warehousing companies that will not only warehouse your product, but handle shipping and receiving.  This is a far cheaper and less time consuming alternative to setting up your own warehouse, especially if you are just starting out.

Second, I would make the property owner bring the building up to code before the lease agreement is signed.  If the building is not to code when you move in, the local code enforcement officer can shut you down.  I went through this with a small warehouse my company leased.  The building had numerous problems and we were given 30 days to correct them.  Luckily, our lease required the property owner to take care of all inside and outside maintenance issues.

I would also not pay for these upgrades by agreeing to and increase in lease rates.  He will be the one benefiting in the long run because his business will be code compliant.  This will make the structure easier to lease if you don't continue the lease.

Finally, NEVER - I SAY NEVER, enter into a commercial lease agreement without going through a reputable commercial real estate agent.  There are many pitfalls to commercial lease that the average person has no knowledge of.  You might also want to have an attorney that handles commercial leases review the agreement.  Both these services will cost you money, but it will be worth it.

I friend of mine fail to do this and leased a space in a upscale shopping mall.  After they moved in, the area was hit by a major rain storm.  That's when my friend found out the roof leaked.  When the roof leaked it shorted out the light fixtures under the leak.  The rain water leaking through the roof also destroyed some of their merchandise.  This is also when my friend found out that their lease did not require the property owner to repair the roof or reimburse the store for lost product. The lease amount also did not cover the separate fee for maintaining the common areas or putting the store name on the marquee.  So spent the extra money for an attorney and real estate agent.

If you would like additional information or help on setting up a warehouse, you can contact me at www.spcfreelance.com.

 

 

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The older we get, the more excuses we make for not chasing after our dreams. But truth is, goals are attainable at any age.

hi to every one

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