Is My Industrial Business Lease Good or Bad?

Simple Things to consider whether your lease is friendly to your business, or is it holding your business back from growth and great profits and your lifestyle growths.

Number 1, the occupancy cost.  Simply put, this is the lease rate, plus NNN charges including other cost variables such as transportation costs and operational efficiencies.  Ideally, the occupancy cost would be as low as possible.  Given the fact that Industrial properties are not the ideal ‘outside investor’ type properties, the only major factor affecting real estate prices and lease rates is the health of the economy.  In this recessionary market, most local industrial markets have seen lease rates plummet with skyrocketing vacancies.  This means Industrial property prices have plunged and availabilities are high.  So the good news is that you can attempt to renegotiate your lease rate or move to another property that has a lower lease rate.  Aside from the actual lease rate, there are other costs to consider including logistics cost.  Are you increasing or decreasing transit times/distances for your trucks/vehicles or delivery vendor/partners, and by how much? If you are increasing the logistics costs, you need to make sure that you are reducing your occupancy costs in other ways to compensate.  A careful analysis, which we can help with, is required to make sure a move is going to benefit the bottom line of your business.

Number 2, do you have a long enough lease?  This is harder to quantify in some cases, as B2B business operating in industrial properties are often in short term leases.  The main thing to keep in mind here is to make sure that your market isn’t getting to hot, because if it is your risk of losing your space is increased.  If you have a very advantageous property and location, you should consider locking up the property on a favorable rate.  Otherwise, retain flexibility to upsize or downsize by staying on reasonably short lease lengths.  A good way to retain that flexibility is to negotiate option terms.  With option terms you have the ability to secure a number of years on your lease with the ability to move by forgoing upcoming lease terms.  Refer back to out post about negotiating option terms to learn about securing the best option terms.

Number 3, make sure you have the ability to assign the lease.  There may be circumstances that force you to transfer the business to a new ownership entity.  In these cases you want make sure that the lease is assignable.  Also, you would like to prenegotiate that you do not remain as a guarantor to the lease.  This is best done when initially negotiating your lease, not when you have to propose the assignment to the landlord.  If you do not have an assignment clause, negotiate one now, before you actually need it.