Tip 1: Utilize the expertise of a tenant broker
Real estate brokers make calls to landlord representatives to locate an array of spaces in the marketplace that are available to fit your needs. Quite often the best space for you has yet to appear on the market but is in the works. Find an expert broker to help you negotiate the best terms possible so you can save money and ensure your lease has the flexibility to accommodate your growth and success as a business.
You may not want to spend the time it takes to canvas the market for space or work with a broker to negotiate terms, but you should. Real estate is one of the greatest costs in a business budget so it is worth spending some time to see where savings can be realized. Your business is unique, so you need a lease that is tailored to how you plan to use your space now and in the future.
Typically, broker fees are part of market prices. If you do not use one, the landlord will often pay their own broker more rather than allowing you to save these costs.
Tip 2: Plan ahead
The time it takes to locate space and complete leasing arrangements largely depends on the specific needs of your organization and the specific space as well as the current market conditions. Here are some typical guidelines:
- Property tours and space identification – 1 to 3 months
- Letter of intent negotiation – 1 to 6 weeks
- Lease negotiation – 3 weeks to 3 months
- Improvements to space – 1 to 6 months
Tip 3: Budget accordingly
Nonprofits vary in size, budget, and location. As far as space goes, it’s best to budget about 200 square feet per person.
A recent study of the Denver Metro Area showed that nonprofit organizations are paying an average of $15 per square foot Full Service Gross (see below for what this means). So if you have a need for 5,000 square feet in Denver, you would likely spend $75,000 annually or $6,250 per month.
Read below for more information about additional costs you may want to consider.
Tip 4: Be strategic
Ask your broker to research and analyze all of the properties you are interested in. Your broker can easily look up pricing, leasing term, amount of space available, debt on the property, and other information that can help you negotiate the best deal.
It is important to identify all key decision makers at the outset. Answering the following questions will help streamline the process:
- Will your board of advisors or directors need to approve the property location and tour the spaces? Will they need to review the lease?
- Does your organization need to gain approval from a national headquarters?
- Do the employees need to be involved in the touring process?
- Do you have an attorney or fiscal sponsor that will need to review and approve the lease?
- Will there be a property search committee to help in the process?
Tip 5: Be informed
There are many factors to consider when budgeting for space rental, some of which carry additional costs.
First and foremost is the type of lease you are in. There are three types of leases available: Full Service Gross, Triple Net, or Modified Gross.
- Full Service Gross means that your quoted rental rate is inclusive of all taxes, common area maintenance fees, and insurance costs associated with the property. However, you must consider that most Full Service leases will not include your internet and phone service charges and some may or may not include janitorial costs as well.
- Triple Net means that your quoted rental rate is only a portion of what your monthly cost for the space will be. You will also pay “triple net“ fees that will cover the property taxes, common area maintenance fees, and insurance for the property. This additional fee generally ranges from $3 to $15 per square foot in addition to your base rent. You will also be responsible for your janitorial costs, phone, and internet charges.
- Modified Gross has a base rent just like a Triple Net lease, but you will only be responsible for paying your own utility costs like water, electric, gas, etc. You will also be responsible for phone, internet, and janitorial costs as well.
Other costs could include:
- Costs for building the space ( known as “tenant improvements”), which may include contractor fees, labor, materials, architect fees, permitting costs, etc.
- Employee and guest parking fees
- Moving costs
- New furniture
Tip 6: Be mindful of common misconceptions
We are going to stay in our current space and renew our lease, so we don’t need a broker.
Market conditions and rental rates are constantly changing. What your organization negotiated five years ago might not be the best deal for your organization today. By working with a broker to review your current lease and renewal options, you might be able to negotiate a better lease rate, discover options to expand your current space, or even get funds to improve the space with new carpet and paint, for example.
Someone on my board of advisors/directors is a residential and/or commercial real estate agent, so we will just have them find/negotiate our new space.
Board members are great assets to organizations and can provide excellent guidance and direction for a myriad of issues. In many cases, however, organizations need to be cognizant of conflicts of interest when using the services of board members. Double check your bylaws and bid protocols before requesting the volunteer services of your board members. If you hire an outside broker to work in conjunction with the board member, they will be able to provide a more objective perspective and take some of the burden away from the volunteer member whose time may be limited.
We have a good relationship with our landlord, and he/she is giving us a great deal so we do not need a broker.
If your landlord says he is giving you a good deal, engage a broker to market-test that it is true. Remember, the landlord is in the business of making money from real estate. Even if you are aware of what another tenant is paying, you do not know enough about their agreement to know how that price compares to one you could obtain. Agreements take into account lots of factors like financial strength, lease terms, improvements, etc. Your broker can do the work to arrange what may be a better deal for you.
This blog was written by Melissa Nochlin and Erinn Torres of Broad Street Realty. Nochlin and Torres specialize in finding real estate solutions for nonprofit organizations. Broad Street is a full service commercial real estate firm that represents clients nationally, with offices in Bethesda, MD; Manassas, VA; and Denver, CO.
Hi Lara,
Do you know of a broker in New York State (in Westchester or Orange County) that deals with helping non-profits find a space?
Have you ever heard of an estate donating their house and land to a non-profit?
Thank you,
Eileen McGowan
Hello Ms. Jakubowski
I am currently working for a Non-Profit Agency in Alabama and trying to identify lessons learned, do’s and don’ts leasing a fleet for Non-Profit. Recognizing that cash-flow is a concern I feel that Leasing is the best option compared to buying a fleet or vehicles. Finally, what is the most appropriate contract that will benefit the Agency? Any journals, books that may recommend at this point?
Thank you,
Charlie
Hi Charlie!
Most of our resources focus on sharing infrastructure in the form of buildings, although I’m sure some have worked on this problem for vehicles as well. This isn’t our area of expertise, so I would encourage you to reach out to other groups in your area with large transportation needs, like car shares, youth camps and others, who might have better first-hand advice for you!
Good luck!
Our location is housed inside a 100k+ sf church facility. They ‘give’ us 33k+ space to use for our nonprofit through an inkind donation. Do I, the nonprofit record the market value as income, and also as an expense? It inflates our revenue / expense stream immensely. I’ve been given conflicting advice.
Thanks
Hi Nora! You are probably getting conflicting advice because the Generally Accepted Accounting Principles are changing on this topic. You’ll need to seek advice from a nonprofit accountant like FMA (fmaonline.net/) or FASS (http://fassaccountants.com/). I encourage nonprofits to include the full value of donated offices space on their financials, because if something changes and you have to seek new space, you have an understand of the full cost of doing business. If the church stopped donating, then you’d have to pay someone for office space!
Hi Laura,
I am looking for some space in Houston Texas that will allow us to use it for our nonprofit for free or close to free. Do you know of any areas or contact people for us?
Hi Shon! There are some great shared spaces in Houston if you check out our map: http://www.nonprofitcenters.org/nonprofit-centers-locations-map/ You also should check out our blog on ways to find cheap and low cost space here: http://www.nonprofitcenters.org/4-tips-to-guide-your-nonprofit-search-for-affordable-office-space/
Howdy Ms. Jakubowski, Thanks for the great insights. Our city has many vacant business locations, and we are interested in finding a group that helps a non-profit get a free-rent lease. there was a story several months back about such a group, but I was unable to get the specifics at the time. We are in the San Antonio METROCOM area, around Randolph Air Force Base. San Antonio is rated in the top five of highest populated cities in the US. The gist of the story was that with all the vacant locations, it’s unlikely the businesses will grow in this environment. The company being highlighted works with landlords, to negotiate little to no-rent situations.
Thanks for the lead, Steve! There is so much vacant commercial space going to waste, and nonprofits make great tenants!
My nonprofit is going to rent a commercial space, and I needed to know if the lease should be in my name (founder and president), or in the name of the nonprofit?
The lease should be in the name of the nonprofit organization. If you sign it on behalf of yourself, you are personally liable for the terms of the lease. You will sign the lease, but the lease should be between the landlord and the nonprofit. Hope that helps!
My non profit organization is in the process of going into a lease and we are being told by some of the members that because we are a 501c3 we can not exceed 35% on over head is this true and if not can you help me with reference
There are no requirements on how much overhead at 501c3 nonprofit can have. There is a lot of work being done around deconstructing the overhead myth that nonprofits with high overhead to program expense ratios are somehow less effective than nonprofits with low overhead margins. You should check out the resources made available by the people over at The Overhead Myth. Nonprofit Finance Fund has also been doing a lot of work to encourage nonprofits to report the real costs of what it takes to accomplish their mission. Some types of nonprofits have more intensive space needs or staffing needs -> higher overhead. You also won’t find a reputable recommendation for how much overhead a nonprofit “should” have. It’s all related to what it takes to execute your mission well. We believe that having stable office space will allow you to better live out your mission. If you have follow up questions, feel free to e-mail us directly at [email protected]
I am advising a new non-profit organization that provides a variety of services to veterans, the disabled and seniors through dance and related forms of body-mind disciplines, including yoga and meditation. This organization is in discussions with a landlord about leasing a large space open space that would require finish-out work for preparation of the wood floor, lighting, space dividers, etc. The organization would like to finance the work required for the finish-out through a small capital campaign (under $50,000), and is well prepared to do so in terms of its support base and credibility in the community. The principals in the organization have experience with capital campaigns for properties owned by non-profits, but have not run a campaign for a non-profit in a leased space. The organization is interested in knowing what best practices have been established for starting and running capital campaigns in leased spaces. Any information you may wish to share in that regard would be very much appreciated.
Capital campaigns for tenant improvements in leased spaces are relatively new, and are becoming more common. Particularly if you are seeking funding from foundations, they want to know how long your lease is, and the longer the lease the better. You will also face questions around the choice to lease space instead of owning a building. In most cases this is a smarter investment for small nonprofits, which runs counter to common wisdom. Additionally, we’ve seen a lot of groups get creative with naming rights in leased spaces. Best of luck with your campaign!
i have been paying rent for a non profit organization to owner for 10 years.
He wants a formal lease now and asking me to personally guarantee the loan even tho
my Non profit has been renting the space for many years.
When he refuses to forgo the guarantee do i have any other means of
continuing the lease without the guarantee?
Hello! I am the owner of a space that is looking to lease to a nonprofit. I’m curious if there is an industry standard for charging an annual escalation? If its a 30 year lease, is 3% escalation per year unreasonable? Or 5% every 2 years? Of course I want to make money and yet I want to be considerate of the financial situation of the nonprofit. Any insight you have would be appreciated. I’m located in Washington State. Thank you!
Does a non profit like our church pay full triple net. Even though we’re a non profit. Shouldn’t we be tax exempt from that.
Hi Ross!
Triple net is a term for a kind of lease team that you’re getting from your landlord. It tells you who is responsible for the expenses that are incurred because of the building. In a triple net lease, the tenant is responsible for the building’s capital expenses, utilities, taxes, etc. The alternative is a gross lease that says that the landlord is responsible for those expenses. Your rent is typically higher in a gross lease than in a triple net lease.
Tax exemption is different. Nonprofits are exempt from FEDERAL INCOME tax in the US. Property Taxes are a local tax, and the rules and regulations vary widely. You would need to check with your local authorities to determine if a private landlord could get a tax exemption for renting to a nonprofit that could be passed along to you in the form of a rent reduction.
Hello,
I wanted to inquire on if you would have information about non-profits leasing or renting in the New Rochelle/Westchester County NY area? I am scouting a location for my non-profit and would appreciate some much needed guidance or redirection to other sources that could best help me. Thank you.
We don’t keep information on a local scale like this, but we wrote a blog post about this particular topic here: https://www.nonprofitcenters.org/4-tips-to-guide-your-nonprofit-search-for-affordable-office-space/
Good luck in your search!
Hi Lara,
Do you know of a broker in northern California near San Francisco bay area that deals with helping non-profits find a warehouse storage?
or if you ever heard of landlords donating warehouses to a non-profit?
Thank you,
Frederick Woldemariam
Hi Frederick,
We have heard of landlords donating warehouse space to nonprofits, but it is a matter of finding a warehouse owner who is aligned with your mission. Since you are in California, one resource to check out is http://www.spacesforgood.org. This site has a variety of nonprofit spaces listed.
I would like to lease land to a non-profit animal rescue group. If I lease it for say $1 an acre for 10 years, do I still pay the property taxes or do they?
Hi Claudie!
You’ll need to talk to a local real estate attorney or CPA with experience in this area. Depending on the rules in your jurisdiction, the property might not be eligible for tax-exemption if it is owned by a private landlord. This varies broadly by local laws.
Katie Edwards
Hello,
I wanted to inquire on if you would have information about non-profits leasing or renting in the Melbourne , FL area
Thank you
Hi Margaret,
I’m not familiar with a single source to finding space in FL. Community Vision in CA has a robust website (www.spacesforgood.org) that lists space in their area. Perhaps they would know of a source closer to you. The NCN website has a map of centers across the US/Canada. You can check it out here: https://www.nonprofitcenters.org/nonprofit-centers-locations-map/
Thanks for connecting with us!
Hi Lara,
I am on the board of directors for a non-profit daycare center and with current forced closures and new restrictions for centers like ours due to COVID it’s going to be really difficult for us in the coming months. We are looking to see if our landlord would help with rent reduction for the short term whilst the dust settles and we begin to re-open: so far they’re not budging but this could cause us to close fully and they’d lose our tenancy altogether. Any tips on how to approach the landlord?
Thanks in advance!
LC
See our blog highlighting some tips shared during a webinar in April. There are suggestions for talking to landlords about rent. Hope this helps!