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  • Shop leasing advice???

    I MAY have a line on a shop that I can actually afford to rent.
    Rentals around here have gone nuts. Same old luck...when I finally get enough stuff to put a business together.
    Stuff that was in the $700 to $800 (per month) a year ago...is now $1500 to $2000 a month.
    This one...in a newer building is rumoured to be about $650.
    I'm trying to meet with the guy today to have a look at it.
    The "informant" says the owner wants a 1 year lease on this.
    I've never signed a lease before.
    I'm thinking it would be wise to get approval to sublease it just in case.
    What else should I be wary of?
    Thanks!
    Russ
    I have tools I don't even know I own...

  • #2
    i tried to rent a building many years ago. what a pain. i own my own shop now and it was cheaper then renting.

    rember if you are paying 500 a month and the utillites are 200 a month and you have to drive to the shop and gas cost is 200 a month. you have to make 900 a month before you start to make any money. and that is every month. now if you were buying your own place and could live there too. the money would be going in your pocket not some one elses.

    Comment


    • #3
      Go for what is called a "gross lease". This means that all expenses, taxes, snow removal, code compliance, maintenance and upkeep of the building are the responsibility of the owner unless otherwise spelled out in the contract. Make sure that there is no clause that relates lease cost to your income in any way (a triple net lease).

      Be aware that usually any modifications that you make that are attached to the building are usually considered "leasehold improvements" and then belong to the owner of the building unless previously agreed otherwise. This can include such things as lighting, air systems, storage shelves and any other construction and changes. Any exceptions you wish should be spelled out in the lease agreement.

      Have a clause in the lease that states that in the event of failure to renew the lease it reverts to month to month with a 30 day written cancellation requirement on both parties.

      Another option is to have a clause that specifies automatic renewal under the existing terms and rates unless either party makes written notification no less than 30 days in advance of expiry (called an "evergreen" lease)

      Have a clause that states that extraordinary expenses related to the property (roof blows off etc) are the responsibility of the owner and may not be passed on except at lease renewal time.

      Have a clause that states that if the property becomes unsuitable for the conduct of your business and/or does not provide for the safe storage of your equipment at any time you have the right to cancel without notice and before termination. This should be without limitation except for events that are under your direct control. It should specifically mention that this clause applies if your access and/or public access to your location become restricted for any reason and exceeds 24 hours in duration. Included in this clause should be any event not under your control that results in a hazard to you, your employees or the general public.

      Make sure the lease spells out exactly what insurance you are required to carry and the amounts. This particularly includes what is called tenants legal liability and is separate from public liability insurance. It covers the cost of damage that you may cause to the building and/or property due to your actions, such as burning the shop down. Make sure the appraised value of the shop is spelled out in this clause.

      Have a clause that specifies how often the landlord or his representatives are permitted to enter the property for the purpose of inspection. Make sure it includes a requirement for prior notification, at least 24 hours. This may have to be an "at any time" requirement but insist on prior notification. This prevents harassment by the landlord.

      Whew.

      Good luck Russ.
      Last edited by Evan; 01-20-2007, 10:56 AM.
      Free software for calculating bolt circles and similar: Click Here

      Comment


      • #4
        Originally posted by bob308
        i tried to rent a building many years ago. what a pain. i own my own shop now and it was cheaper then renting.

        rember if you are paying 500 a month and the utillites are 200 a month and you have to drive to the shop and gas cost is 200 a month. you have to make 900 a month before you start to make any money. and that is every month. now if you were buying your own place and could live there too. the money would be going in your pocket not some one elses.
        Bob...LOL! I wish!
        Real estate has gone nuts here. The "oil rich" Albertans have decided to make this place their play ground. They are bidding places up as high as they need to to get hold of it. EG...a two bedroom house trailer on 1/2 acre. Guy bought the used trailer for $8000, the lot for $9000. It's on the market right now for nearly 1/4 million and it'll prolly sell this spring.
        Shops that I SHOULD have bought a couple years a go for $150,000 are now $350,000. The taxes on some of these buildings are very high...$1500 to $2000 a month. Makes the $650 rent seem like a deal!
        Evan...Thanks! Thats exactly what I was looking for. Never even knew about most of that!
        I'm sure hoping this turns out. Been hording startup cash for awhile now. Any more deals fall through...I might get stoopid and blow the money on a newer Harley (kidding...I think)
        Russ
        I have tools I don't even know I own...

        Comment


        • #5
          Gross lease? Try "triple-net."

          That's the comercial standard around here. I just looked at a wedge-shaped 2,000 square foot cinder block warehouse building on a wedge-shaped 2,500 square foot (really!) lot . Location? A block off the RR tracks, in the only area left in this town with warehouses and auto body shops.

          Lease - $3,100 a month, PLUS taxes, insurance, exterior maintenance, etc.

          Purchase $900,000.

          Tough on little businesses. . .

          Cheers,

          Frank Ford
          FRETS.COM
          Gryphon Stringed Instruments
          My Home Shop Pages
          Last edited by Frank Ford; 01-20-2007, 11:22 AM.
          Cheers,

          Frank Ford
          HomeShopTech

          Comment


          • #6
            Holy Smoke...that's just rude isn't it. How could you buy any cool toys after paying that much rent?
            I have tools I don't even know I own...

            Comment


            • #7
              They don't care how many toys you can buy while paying that much rent... but how many toys THEY can buy with you paying them that much rent. They don't care if you eat as long as you pay the rent.
              Wow... where did the time go. I could of swore I was only out there for an hour.

              Comment


              • #8
                I had a gross lease for my business for 9 years.

                One thing I forgot to mention. If you are considering doing any leasehold improvements that will permanently increase the value of the building then negotiate with the landlord over a rent reduction of some sort. Put it in the contract too.

                One more item, keep a copy of the lease OFF the premises.
                Last edited by Evan; 01-20-2007, 04:54 PM.
                Free software for calculating bolt circles and similar: Click Here

                Comment


                • #9
                  And why should they? The only thing they should care about is if the lease holder has the ability to pay the rent and if they have insurance to cover damage to the building.

                  Originally posted by Tinkerer
                  They don't care how many toys you can buy while paying that much rent... but how many toys THEY can buy with you paying them that much rent. They don't care if you eat as long as you pay the rent.
                  Brett Jones...

                  Comment


                  • #10
                    One can get lucky - very lucky

                    While we are looking for additional space and finding rents to be sky-high, we are not losing our appreciation for a great piece of luck we had in renting the building we now occupy. Luck without which we would not have been able to weather some very tough economic times in the 1980s.

                    We moved in 30 years ago last month, and lucked onto the most kindly landlord a struggling business could find. For our first fifteen years here, he told us "I don't like leases, but I do like you guys." He proved that over and over while we had month-to-month tenancy. Once Hewlett Packard offered him three times what we were paying, and he said, "No thanks, I like those guys." Now that he's been dead for a dozen years, we have a lease (gross), and his daughter (my age) and her husband treat us like members of the family, keeping the rent somewhat below a third of market. In a town where retail stores pay upwards of five bucks a square foot per month, and warehouse space is a buck and a half, we operate a reatil music store and pay all of 40-some-odd cents to a family that, for some reason, is wealthy but not greedy.

                    Now that we've grown, we sure would like to replicate that piece of luck. . .

                    Cheers,

                    Frank Ford
                    FRETS.COM
                    Gryphon Stringed Instruments
                    My Home Shop Pages
                    Cheers,

                    Frank Ford
                    HomeShopTech

                    Comment


                    • #11
                      i was not trying to be funny. but in my area i have not seen any one or two man shops make it paying rent. the only ones that do buy their own place. like i said when i rented i lasted 2 years. then went out of business. bought my own house built a 40'x28' building. it was cheaper then paying rent.

                      Comment


                      • #12
                        Originally posted by bob308
                        i was not trying to be funny. but in my area i have not seen any one or two man shops make it paying rent. the only ones that do buy their own place. like i said when i rented i lasted 2 years. then went out of business. bought my own house built a 40'x28' building. it was cheaper then paying rent.
                        Bob...I hear you. Makes me a bit mad. I HAVE a shop...and plenty of room to expand but the city won't let me operate out of here.
                        I was allowed to run a full blown cabinet shop here but no...you can't do any metal fab work or machine work from a home based business.
                        It's stupid...my big woodworking machines made a hell of a lot more noise than anything I do now. I had big barrels of sawdust and scrap everywhere....that was fine....but don't dare do any welding or machining.
                        I'm never planning on moving all my stuff. I'll keep some of the machining stuff here at home and do most of the fab work in the other shop. That'll prolly be about 75% of my business anyway and will give me a "proper" storefront. That's what I do and know so the machining will be mostly filler work to begin with.
                        I've been turned in to the Nazis twice now...by another welding shop who don't even do the type of work I do. It's all about the "Good Ol' Boys Club".
                        The guy inherits a huge shop from Daddy....screws the dog building old cars for him and his kids then turns me in for "cutting corners". Oh well...such is life
                        Which reminds me...I still haven't heard from this guy about the shop. Was so busy in mine today/night...I forgot about it.
                        Russ
                        I have tools I don't even know I own...

                        Comment


                        • #13
                          Leasing has the advantage of being fully deductible against income as a business expense. If you are paying a mortgage then only the interest on the payments is deductible. Leasing also allows you to bail out with much less difficulty and isn't as interest rate sensitive.

                          BTW Russ, I forgot to ask. How is the ear doing?
                          Last edited by Evan; 01-21-2007, 12:23 AM.
                          Free software for calculating bolt circles and similar: Click Here

                          Comment


                          • #14
                            I thought that was the leasing of equipment and vehicals. Does that apply to building space?

                            Originally posted by Evan
                            Leasing has the advantage of being fully deductible against income as a business expense. If you are paying a mortgage then only the interest on the payments is deductible. Leasing also allows you to bail out with much less difficulty and isn't as interest rate sensitive.

                            BTW Russ, I forgot to ask. How is the ear doing?
                            Brett Jones...

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                            • #15
                              Certainly it applies to building space. It's a cost of doing business.
                              Free software for calculating bolt circles and similar: Click Here

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