One of my biggest pet peeves is signing that check each month for our office lease. I might be ticking off my landlord and my commercial real estate agent, but talk about something that I perceive is a high fixed expense that doesn’t generate revenue each month. As an investor, nothing drives me more nuts than hearing about an early stage startup signing a long-term lease in a Class A building. After payroll and benefits, often times leases are the next most expensive line-item. In this market, you are the buyer and you should expect significant concessions before signing any leases.
Here are some tips that I have to keep that lease as inexpensive as possible:
1) Get it free. Start it in your garage. Go virtual. If that doesn’t work, sublease from a friend that has some extra space for free. In exchange, you’ll give him some equity in your company and a promise to pay starting in 6-12 months if you start hitting revenues. You’d be pleasantly surprised how easy it is to get free space.
2) Sublease. A lot of companies are downsizing and what that means is that there will be more space available. For many, having a startup means some extra cash and in some cases, it also helps keep positive mojo or energy in the office after a layoff. Having a startup is a benefit you shouldn’t hesitate bringing up as a plus for a company that is a sublessor. Here’s another kicker – a lot of times, you can also piggyback their Internet connection for more savings! Look to pay no more than 15-30% of market value – trust me, these deals are out there.
3) Negotiate HARD. Price and terms. Learn about market rents, hire a commercial real estate agent to help you understand the market. Then push hard. Short-term is best, why lock in for 5 years? It makes no sense, many will argue you want to lock in your prices especially if they are low, but you can always negotiate options into your contract. Why pay market? Who are the local players? They are more likely to wheel and deal. Try signing 1 year deals and don’t pay for tenant upgrades, just live with what they have and if you need to buy furniture – buy Craigslist or IKEA. Be sure to read my negotiating strategies.
Try negotiating even if you are in a lease, let the landlord know you need a discount now and you’ll remember her when you have to renew the lease. You have leverage now. Don’t spend more $$ on that lease, it sucks to pay rent especially when you could be using those dollars for that additional engineer or salesperson that will bring in real revenues.
What do you think? Do you have any successful lease stories to share?