Let’s Get Physical (Location)

Leasing Your Startup Office

The foundation of your physical presence is the lease agreement. This legally binding contract outlines the terms of your tenancy, including rent, duration, and responsibilities. Here’s what you need to know.

Lease Types

Businesses typically use a commercial lease, which comes in various forms, offering distinct advantages. Here’s a breakdown of the most common types:

• Gross lease. This comprehensive option incorporates base rent, utilities, and maintenance costs into a single monthly payment. It provides predictability in budgeting but typically comes at a higher overall cost.
• Modified gross lease. This balanced approach covers base rent and potentially some utilities within the rent while leaving you responsible for certain expenses like maintenance. It offers a middle ground between cost and responsibility.
• Net lease. This cost-effective option focuses on base rent only, with you responsible for all additional expenses, including utilities and maintenance. While it offers the most flexibility in managing these costs, it also requires the most hands-on management.

Understanding the pros and cons of each type of lease is essential before committing. For example, a gross lease provides simplicity and stability in budgeting, while a net lease gives you more control over your space and costs. It’s important to review and negotiate the terms of your lease carefully to ensure they align with your business needs and financial goals. 

Lease Review

Don’t just skim the lease. Carefully review it with a lawyer specializing in commercial real estate. Key elements to scrutinize include:

• The lease term or the length of the agreement
• Rent escalation clauses, which explain how much the rent can increase over time
• Any maintenance responsibilities, explaining who is responsible for repairs and upkeep

Also, review the possibility of early termination fees and subleasing/assigning the lease if your circumstances change.

Permitted Use

Ensure that the lease allows your business type. Imagine leasing the perfect space for your yoga studio only to discover the fine print prohibits using the space for fitness activities.

Security Deposits

Most leases require a security deposit, typically equivalent to one or two months' rent. This deposit is returned upon lease termination, assuming you meet the lease conditions.

Negotiation is Key

Don’t be afraid to negotiate key terms. Negotiable terms might include rent increases, lease termination clauses (allowing you to break the lease under specific circumstances), and permitted uses of the space. For example, negotiating a flexible termination clause can provide an exit strategy if your business needs change.

Understanding Zoning Regulations

Zoning laws are regulations that determine the permitted use of land within a specific geographic area. They set guidelines for what types of activities, such as residential, commercial, or industrial, are allowed in different zones. Research the zoning regulations for your desired location to ensure your business aligns with the permitted uses. Here are some steps to follow:

• Consult the zoning map. Most municipalities have zoning maps available online or in their planning department. These maps reveal the permitted uses for different zones.
• Contact the zoning department. If you need help, contact your local zoning department. They can clarify regulations and advise you on any permits you need.
• Obtain building permits and inspections. If you plan to renovate the space, you’ll likely need building permits from the local government. Be sure to factor in processing times to avoid delays in opening your doors. 

Not adhering to zoning laws, obtaining required permits, or passing inspections can lead to fines or delays in starting your business. 

Necessary Business Permits and Licenses

Once you’ve secured your ideal location, it’s time to obtain any necessary business licenses and permits. Requirements vary by location and industry, but some common ones include:

• Business license. Most towns and cities require a general business license to operate legally. Contact your local licensing authority for application details.
• Sales tax permit. This allows you to collect and remit sales tax on taxable goods. If you plan on selling taxable goods, you’ll need to register for a sales tax permit with your state’s revenue department. 
• Industry-specific permits. Certain industries have additional permit requirements, so it’s necessary to research the specific permits required for your business type. For example, restaurants require a health department permit, while hair salons need a cosmetology license.
• Occupancy permit. This verifies your space meets safety and code requirements for your intended use. Obtaining this permit is crucial before opening your doors to the public.
• Signage permit. Regulations often govern the size, placement, and illumination of your business signage. Contact your local authorities to ensure your signage complies.

It’s always best to check with your local government for a comprehensive list of required permits. The Small Business Administration (SBA) is a valuable resource. Its website can help you navigate the permitting process in your area, and many local SBA offices offer free counseling and workshops for entrepreneurs.

Frequently Asked Questions

Is a Lawyer Necessary to Open a Brick-and-Mortar Business?

While optional, getting advice from a lawyer with experience in commercial real estate or business law can ensure your business is legally compliant and prevent future problems. They can assist with contract drafting, zoning laws, regulations, and dispute resolution, helping you avoid legal issues and protect your business.

Can I Operate My Online Business Alongside My Physical Location?

Many businesses successfully maintain an online presence alongside their physical store. This allows you to reach a broader customer base and leverage the strengths of both online and offline channels.

Do I Need Additional Insurance for a Brick-and-Mortar Business?

A physical location will likely require more comprehensive insurance coverage than an online business. If you plan to hire employees, consult an insurance agent to explore options like property insurance, liability insurance, and workers’ compensation.

Opening your first brick-and-mortar business is a momentous step for your startup journey. Thorough legal preparation ensures your company’s long-term success and sustainability.

Disclaimer: Bizee and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.