Many people view their lease as a necessary expense to achieve their business objectives. They “need space” therefore they rented it based on how landlords typically market space – location, amenities, rental rate, etc. However, there is a more strategic way to approach your lease and facility. Knowledgeable business owners structure their leases in such a way that it will be viewed as an enhancement to the business, rather than a drag on the business, at the time of acquisition.
Like in chess, successful leases are structured by those who think several steps ahead. Too often, people view the leasing decision, such as a renewal, as an item that needs to be checked off a list. Decisions that will not only comprise what is typically your second largest expense, but also help determine the value of your business should not be taken so lightly.
Below are some steps you can take to not only better protect yourself now, but also position your company for stronger value in the future.
Reprogramming. Most tenants are content with their space, but if you force the landlord to truly compete for your tenancy, allowances for reconfiguration may be negotiable to add value and efficiency to your existing facility, or to achieve greater total cost savings elsewhere.
Sublease & assignment rights. Firm consent standards on the landlord and limitations on restrictions imposed are only part of what you need to enhance your lease. Tenants often think about cost reduction, if they need to get out of a lease, but they often don’t pre-negotiate particular merger rights.
Renewal and expansion options. These options rarely actually get used, but they provide assurances for prospective acquirers, especially if they’re properly negotiated.
Operating expense standards and reviews. Savvy business purchasers know that tenants are susceptible to runaway facility costs. Having well-negotiated cost controls and an annual review process in place will reassure potential buyers.
Alterations. Your acquirer may have different plans for your facility; for example, they may want to combine their own operation, that of another business in their portfolio, or change the focus of your company, once acquired. Having the right consent standards, restoration restrictions, personal property protections and cost controls will enable the purchaser to better align your facility to their new business plan.
By taking the long view of your lease and facility, you will not only reduce costs, mitigate risks and improve your facility today, but also enrich the value of your business well into the future.
