Imagine that you own or manage a small business and want to lease that new 5,000 square foot free-standing building down the street. So you pick up the phone and call the leasing broker listed on the sign out front. She meets you at the property, and you love it. You want to lease it right now to move in next week.

"Not so fast," she comments. "We first have to agree on a lease price and terms." You look dumbfounded. Didn't she just tell you it leased for $20 a foot or $8,333.33 per month? This seems simple enough.

"No," she tells you, "we need to fill out a Proposal to Lease," and this is where your education really begins.

You meet the next day in the broker's office, and she brings up the Proposal to Lease form for your review. You have no trouble establishing who the landlord is and the size the space, but when she asks you what the name of your company is and who will guarantee the lease, you get a little nervous.

Your company, The ABC Cookie Cutter Company, has never registered its name with the Secretary of State, and now she is asking you as the president to put your name on the lease and guarantee it. Well, it's all part of being in business, so you move on. Then she asks for the intended use. You say to sell cookie cutters. The broker says, "Are you going to make them here also and sell them out of the front door? If so we want to define, the retail sales, manufacture, and main office operations as part of your use."

You also have to keep in mind that you want to sub-lease some of the space to your attorney Perry, and if that is the case, you will want to include his use in the clause.

Next, you fill out the lease term and commencement sections. You expect a two-year commitment, and the broker tells you that a five-year lease is the minimum the landlord will allow and that he wants you to move in within 60 days. Your head is spinning; you think to yourself, "how do I know how big my company will grow in 5 years and then they want me to move in right now!"

That old headache you thought was gone just came back.

The rent issues she discusses next should be easy, but you find out to your horror that the $8,300 rent tab is just for starters. The landlord wants an annual rent increase of 5 percent a year, and when the taxes and utilities go up, he wants you to pay that as well as the property management expense. Now you are really worried and pull out your cell phone. "Am I allowed to place a call to my friend Perry the attorney?" The broker says "yes" but suggests that you wait until the end of the proposal so that you will have a list of all of your questions.

At the end of this section she mentions to you that she will need a credit report and that you will need to pay first and last months' rent as well as a security deposit, all up front. Your recent cash flow shortages make the sweat drip down your forehead.

Next she asks you about any tenant improvements you might want. You were pretty happy with the space, but it needed a couple of new offices, painting, carpeting and category 5 cabling throughout. "No problem," she says, "I think the owner will be willing to pay for half of it."

You sit up straight in your chair and think "why only half?" The she mentions a tenant improvement allowance of $30 per foot. You realize that you may have to use cubicles instead of walls to get those offices going.

Then she explains that you are responsible for all of the maintenance inside of the building during the lease term, including the doors, windows, and air conditioning, and that the owner will take care of the roof, exterior painting, asphalt, and sidewalks. She also points out the minimum level of insurance the landlord needs you to carry and that you need to pay for all of the utilities: phone, water, sewer, electricity, gas, and garbage.

"Parking is another issue," she explains. "We have 25 spaces allocated for the building." She continues, "Signage is only allowed on the front of the building and is limited by city ordinance to 48 square feet. If you want to renew your lease, we should discuss the rates and time frames now. If you want to expand or contract in the future, we should also address this in the lease proposal."

With all of these expenses swimming in your head, you think that maybe you should own the building. She says, "Well, we could either include a right of first refusal to purchase the property or a right of first offer in this proposal." By this time, you are so confused that you agree and hope the process gets over soon.

She prints out the proposal and asks you to sign and give her a first month's rent check to show that you are really serious about making this deal. You know that you don't have the money in your account, so you tell her that you want to review the draft of the proposal with your attorney and will get back to her. She looks disappointed but prints it out, and you leave with your hand on the cell phone dialing Perry's number.

You go back to you office and start penciling the numbers. Your current rent is half of the new rent, and with all of the additional factors and increases in mind, you realize that this space is too expensive for you for the time being. You call the broker and let her know that you are going to pass, but then she mentions that the landlord is motivated and could give you three months free if you agreed to the lease. She had not mentioned this before, and it makes you stop and think.

But the time is not right, and you tell her you need a smaller, less expensive space. She smiles over the phone and tells you of another location that might just work for your budget.

You listen to her, look at the property, and fill out another proposal that makes more sense to you and four months later are moved in.

Not all stories have a happy ending, but the bottom line is that the lease proposal will make or break the deal. When considering commercial space, you need to plan ahead -- years ahead -- to avoid costly surprises and be certain you're comfortable with all the deal points.

For more articles by Clifford Hockley, please press here.

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Copyright 2001 Clifford Hockley. Posted by Realty Times with permission.

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Published: July 11, 2001

Use of this article without permission is a violation of federal copyright laws.