Thinking about renting an office, but not sure of the "ins and outs"? Our latest blog series will cover six areas you should consider before signing a commercial lease document.
What am I signing up for?
Renting a commercial office space will require you to sign a commercial lease. A-grade buildings in good locations will usually require a six year lease and new buildings can be for longer. For high demand space, you will often need to guarantee payment of the lease for the full term, either with a personal, or bank guarantee.
Then if you outgrow the building mid-lease or need to downsize before your lease ends, you remain responsible for the full term of your lease, for both rent and outgoings. If you move out, you will then need to find a sub-tenant and manage their occupancy, as well as finding and running a new office space.
Should you sell your business before the lease expires and your trade buyer doesn't want your office, you will be responsible for the office until the lease expires.
And don't imagine you can walk away from the lease if there is no personal guarantee. As directors, to sell a company, close it down and take the capital gain, the directors will have to certify there are no contingent liabilities outstanding.
Commercial leases legally bind business owners to some serious fixed-cost commitments, some of them surprising to even experienced business owners and managers. You can read a first-hand account here: Hidden pitfalls of office leasing
Then, consider the worst case for business owners. What if your venture is unsuccessful? It's not a crime to fail, right? We agree, it shouldn't be, but the consequences of a business folding can feel like a sentence. Not only have you lost your company, but your income source too.
Wait, it gets worse. If you provide a personal guarantee, as most commercial leases require, you will have a large personal liability you maybe can't cover. Personal bankruptcy can soon follow.
Remember too, a limited liability company won't protect your family home or other personal assets when a personal guarantee is signed in a lease document. And recent changes to trust laws in New Zealand can also provide options for creditors to pursue otherwise protected assets.
If you think this is all scaremongering, read business owner Lester Bryant's personal experience in this Stuff article. Or better still read his informative book Going Broke, in which Lester details how badly things went wrong for him, locked into long term, fixed cost commitments.
Shared spaces and serviced offices by contrast, usually won't require a lease, but rather have simple short term agreements (often 6 or 12 months). After the initial term, agreements will often roll over monthly.
Not being tied into a long fixed tenancy allows you to rent exactly the space you need, and upsize, downsize or terminate your agreement when your business needs it, rather than when your office lease dictates.
Follow our blog series to discover the other key areas to consider. If you really can't wait, link to our Office Rental "Q&A' page for summary information.
If, after reviewing this blog, you would like to consider a serviced office, we've made the research easy with our quarterly updated: List of Coworking Spaces in the Hawke's Bay
Or do please Contact Us directly for a personal tour of Hastings HIVE, a large modern, high-tech serviced office space.
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