The choice to rent premises remains a weighty one and the side effects of signing a lease without doing sufficient homework will be borne by the business for as long as the lease lasts, which could even mean years.
Being landlord to thousands of businesses across South Africa, Mr Naidoo gives us his top ten tips to consider when looking to find the right place for a business.
1. Location is key
This ‘golden rule’ of property applies to rental premises as well. It serves no purpose to occupy a grand building, even at minimal rent, but you are miles away from your customers and suppliers. This could also mean that your employees would struggle to reach work, having to wade through congested traffic to get to your premises and needing to employ a private army to keep your equipment safe at night. Start by choosing a good area for your business – then look for the right building.
2. Get the size right
Finding the right size premises is tricky because you have to take into account the growth of your business over the period of the lease. If the premises are too big, you will be wasting money on unused space. If they are too small, you will be forced into moving before the end of your lease term, incurring unnecessary moving and down-time costs.
3. Beware of taking on too much office space
Often business premises come with a pre-existing ratio of warehouse-to-office space, or workshop-to-office space, which is usually the legacy of the previous occupants. If, for example, you need only one office, ask your prospective landlord to knock down the walls to adjacent spaces so that you don't end up paying for wasted space.
4. Don't fall for the mezzanine level
Many landlords build mezzanine levels in order to increase the square metres that they can rent out. It may work well as office space, but the stairs make it a bad idea if you want to use it for storage, and the low roof can limit your ability to stack goods.
5. Scrutinise the operational costs
An affordable-sounding rent may hide high electricity, water and security costs. A complex with LED lighting as opposed to old fashioned floodlights can save your business thousands of rands over the period of your lease, as can a well-insulated building on air-conditioning costs. Make sure all the operational costs are clear and on the table when you negotiate your lease.
6. Back-up infrastructure
Ask if the premises you are interested in have any back-up systems for electricity and water supply, which have become increasingly important due to power utility or municipal interruptions. Increasingly, business complexes have their own back-up generators or solar power systems and rain-harvesting systems as part of the green building movement. It is also prudent to check the signal coverage in the area by the various cell phone and fibre cable networks.
7. Pick premises with a fair rental
Make sure you are not signing up for a rental that is higher than the going rate in the market. Shopping around for premises will soon give you a good idea of the square-metre rate for the type of premises in a similar area you are looking for. Independent consultancy and research companies compile area reports against which you can verify your findings.
8. Make sure the business can afford it
It is one thing to make sure that your rate per square meter is fair and in line with the market and a different question altogether whether your business can afford the package as a whole – the monthly rent, the operational costs and possible increased transport costs. Do your calculations carefully to ensure that your business can carry all the costs of the new premises – including the deposit required by the landlord.
9. Negotiate the right length of lease
An important part of the suitability of business premises is the length of stay that the tenant can rely on before having to vacate or re-negotiate with the landlord. For many businesses, especially retailers, the aim is to sign as long a lease as possible, but sometimes a fast-growing business may only want to stay for a year.
Carefully consider your business's needs and make a point of negotiating the best lease period with the landlord.
Because landlords usually prefer long-term tenants, the length of the lease can be used as a bargaining chip, depending on how keen the landlord is to have you. You could agree to sign up for five years instead of three, for example, if the landlord agrees to drop the annual rental escalation by a percentage point or two.
10. Check out the landlord
Enquire about your landlord by speaking to previous tenants, current tenants in other properties owned and managed by the same landlord, neighbours, as well as your wider business network. This will give you comfort that you are entering into a contract with a landlord whom you can trust, and who will contribute to your business success for many years to come.