Leasing Studio Space

CraftsLaw055The major issues to consider when leasing space are fairly obvious. Figure out the maximum rent your business can afford to pay per month, determine what type of security deposit you can pay and consider how much money you can afford to alter the space to fit your studio needs.

 

  • Rent. Calculating the monthly rent for a leased studio is more complicated than what you’re used to when paying monthly rent for an apartment or house. That’s because many landlords charge you not only for square footage, but also for other regular expenses such as real estate taxes, utilities and insurance. If you rent in a multi-tenant building, you’re likely to be asked to pay your share of common area maintenance, too. If you rent the entire building, you may be asked to foot the entire bill for these costs.
  • Deposits. Many commercial landlords require tenants to pay one or two months’ rent up front as a security deposit. The landlord will dip into this deposit if the tenant fails to pay the rent or other sums required by the lease (such as insurance or maintenance costs). The amount of the deposit for commercial rentals is not regulated by law, but is instead a matter of negotiation. Landlords tend to demand high deposits from new or otherwise unproven businesses—which are often the least able to produce a large chunk of cash.
  • Improvements and Expenses. Unless you are fortunate enough to find space that was previously owned by a crafts person in the same field as yourself, you’ll need to modify the space to fit your needs and tastes. These modifications are known as “improvements.” There are several ways that landlords and tenants can allocate the cost of improvements. You might find a landlord willing to foot the entire bill but don’t count on it; the tenant usually pays for this work. You’ll need to determine what it would cost to make your space usable.
  • Length of the Lease. The “term” of your lease means its chronological life. Your lease could be as short as 30 days (in a “month to month” agreement), or run for one, five or ten years. As long as you satisfy the important conditions of the lease (such as paying rent and other costs), you have the right to remain in the space until the lease is terminated or expires. And unless the other terms of the lease provide otherwise, they, too, are guaranteed for the life of the lease. For example, your landlord’s promises to provide on-site parking and janitorial services can’t be ignored.

Reasons to opt for a short-term lease. A short term lease may be attractive if you:

  • are just starting  and want to test the waters
  • are feeling uncertain about your business’s prospects for success
  • would like the freedom to leave on short notice.

Reasons to opt for a long-term lease. A long-term lease may be attractive if you want to:

  • minimize transaction costs
  • minimize improvement costs.   Chances are that you’ll have to pay to alter your space to fit your studio needs, so you may not want to do it again soon. Also, with a longer lease, the landlord is more likely to pay for substantial improvements, or at least pick up a good chunk of the tab
  • lock in a good deal. If the space is desirable, you may want to make sure that you’ll have it for some years to come
  • get the most in the way of improvements such as fresh air, amenities, security and comfort.

Other Important Lease Elements

In addition to the business terms, you’ll need to evaluate elements of the property that are important to you personally and to the operation of your studio.

  • Fresh Air/Open windows. Many landlords feel that windows that open and close will compromise the efficiency of the building’s heating, ventilating and air-conditioning system, known in the trade as HVAC.  So if you highly value fresh air on demand, make this a priority when studio searching.
  • Soundproofing. Good sound insulation between rooms within your space and in the walls separating your space from that of adjacent tenants may be very important—especially if you’re the one who will be making noise with machinery or tools.
  • Control of heating and cooling. In some buildings, you have to take whatever the HVAC system happens to be pumping out. In others, you may have one or more thermostats within the space you lease. Individual control of your work climate will be a high priority if you or employees work on weekends or nights, when building-wide ventilation and heating controls are typically turned off.
  • Storage space. Some buildings have extra on-site storage space for tenants.   If you need space for items that you use only occasionally, access to a separate storage area may be a priority. This can reduce clutter and free up your rental space for important uses.
  • Private restrooms. Many buildings offer restrooms that are shared by several tenants. However, if you’re willing to pay a higher rent, it may be important to you to have restrooms within your leased space for the exclusive use of your employees and customers.
  • Parking. Your landlord may impose an additional charge for on-site parking. You won’t be guaranteed a specific number of spaces or spaces at a designated location unless the lease says so.
  • Security.  Your local police department is a good source of information on the safety of various areas in your town. Also check on the internal building security—flimsy locks on doors or windows are invitations to opportunists. Reasonable security steps may include adequate outside and inside lighting, strong locks, limited entry, alarm systems and even security guards.
  • Ability to expand space. Some craftspeople forget to plan for success. After the first year or two, you may need more space. Depending on your expectations for growth, you may feel that the ability to take over additional space in the building is a high-priority factor. You’ll want to nail down your right to occupy additional parts of the building in a lease clause giving you the right of first refusal when space opens up.

Typically, you’ll be working with a lease that’s been written by the landlord or the landlord’s lawyer—and you can bet that neither one of them will be looking out for your best legal or economic interests. So treat the landlord’s proposed lease as the starting point from which you’ll negotiate changes.

Don’t fall for the line that “this is a standard lease.” There’s no such thing. Every lease can be modified, even a lease that’s widely used in your community, printed and distributed by a big real estate management firm or accepted by other tenants who lease from this same landlord.

Don’t assume your landlord will tell you about zoning rules. As with a home office, you’ll need to be sure that there are no zoning laws that would prohibit you from using your leased space for your studio or retail use.  Usually this is a simple matter of getting appropriate documentation from your landlord. Never sign a lease without being absolutely sure you will be permitted to operate your business at that location.