Space specifics

(April 2007) As an advisor running your own practice, there’s a good chance you’ve needed to negotiate a business lease at some point. Even though there are a number of obstacles when it comes to leasing office space, there are also a number of steps you can take to minimize the chance you’ll run into problems.

First, hire a lawyer to review your lease agreement. Dick Haas is a planner and principal of Haas Financial Services in Acton, Ont. He says the advice provided by his own lawyer is invaluable. When it comes to renewal fees, for example, lease costs can go up 10% automatically after one year. “Hiring a lawyer is the best money you’re going to spend,” he says.

Don Smith, a sales representative with the commercial division of Re/max Professionals, agrees financial planners should hire a real estate broker or lawyer to ensure they are protected through the leasing process.

The following are five tips he offers to help improve your leasing experience.

Hire a professional

A real estate broker can save you time by searching properties and narrowing them down, based on your preferences. A broker will also be privy to information about properties not available to you. “Get a professional who does this for a living so you can have someone in your corner. Get someone who knows the community,” says Smith. “It’s the same as when I go to my financial planner. He knows about stocks and bonds; I don’t. He puts it on the table for me.”

Although a real estate agent is compensated by the landlord — in more than 90% of cases, the agent is paid per square foot of space, not the rental rate — by law, the agent is working for the planner or business owner.

Whether you see a lawyer or a real estate agent, Smith suggests that you do it early, saying planners should hire one as early as 18 months before a lease expires to secure negotiating leverage. Also, discuss with your lawyer or agent how to get out of your lease if needed.

Get it in writing

During the term of one of Haas’s office leases, the property owner changed twice, which made him glad he had his lease terms in writing. Regardless of how well you get along, “confirm in writing anything that is promised when you move in,” he says. “Don’t assume everything will be hunky dory.”

This includes insurance matters — find out what you are liable for. “Who is responsible for the damage if water from another tenant’s office leaks into your space?”

Be careful about costs

Gary Butler, director at the Seneca College Centre for Financial Services in Toronto, urges would-be leaseholders to be careful about costs and suggests performing a net-present-value analysis to compare leasing options. And when comparing properties, ensure you consider not only the cost for the space (net rent) but also operating expenses like heating and maintenance, which is called gross rent.

Try to negotiate to keep operating costs constant for part of the lease term. In particular, when looking at square footage, consider any features that detract from usable space. “You could have heating ducts coming out from the window and lose one foot all the way around,” he explains.

Also look into a tenant improvement allowance — essentially a loan from the landlord to cover improvements to the space. In a slow market, you may be able to negotiate to have the landlord provide funds or a reduced rate loan, to be repaid with your monthly fees, to renovate the space. To determine how much of a loan to look for, Butler suggests calling a design firm to get estimates on improvement costs.

Sole practitioners negotiating to rent space or a desk within an office should get in writing details about the costs for a phone, computer hookups, printing and photocopying. Also, inquire whether you will have after-hours access to the office.

Ensure office security

Because financial planners deal with sensitive client information, Smith says security is especially important. He also points out that companies are required to protect personal information under the federal Personal Information Protection and Electronic Documents Act.

With that in mind, he says planners should inquire about noise transference between offices and how the walls were constructed. Employees who work in cubicles should have access to private meeting space; computer servers should be kept in well-ventilated, locked rooms under tight security control; and larger firms should look into whether a building provides a security system with access cards as part of the lease cost.

“There is no second chance on these issues. You have to show you’ve done everything you can to comply.” As well, he points out that employee safety is important and says managers should consider features like a secure parking area.

Sweat the small stuff

Appearance is one of the most important office aspects to consider. “You want to portray an image of success and the ability to generate a good income,” says Smith. “You don’t want to be over the top or too personal though. Stick with neutral décor.”

Make sure the office is accessible by transit and has parking available. If it is a larger building with a security desk, ensure clients can get access to your business when security is off-duty.

Butler also suggests asking for extras — the ability to renegotiate during the lease, reduced-rate or free parking for employees, or a month’s free lease to accommodate renovations made before moving in — when negotiating your lease.

Other issues to consider:

• A lease may not provide the right to renew when the term ends, so the landlord can offer the space to other possible tenants willing to pay more. • The energy efficiency of the building — do the lights go out at night? • Are there other financial planners in the area? • Do you have the right to put up signage? • Who controls heating and air conditioning? • Where are the electrical outlets? • Are window coverings included? • Is building management on the premises?

Even though an office lease can have more than 100 clauses, Butler strongly advises business owners pay attention to every detail. “If you get your office lease wrong or choose the wrong office, you suffer for a long period of time — get it right the first time!”

What do you think? Let us know by sending your letters to feedback@advisor.ca.

(04/17/07)