7 Leasing Tips for Nonprofits
Tip 1: Plan ahead
The time it takes to locate space and complete leasing arrangements are hugely variable and will depend on the specific needs of your organization. If your planning includes a likely relocation, you should start the process up to two years in advance. Here are some typical steps in the process with the estimated time you may need to allow for each step:
- Identify short and long-term needs in alignment with strategic plan – 1 to 3 months
- Property tours and space identification – 1 to 6 months
- Letter of intent negotiation – 1 month
- Lease negotiation – 1 to 3 months
- Improvement approvals – 1 to 3 months
- Improvements to space – 2 to 8 months
- Move-in and commissioning equipment – 1 to 2 months
Tip 2: Be strategic
Identify likely sympathetic landlords. Is there a nonprofit center nearby that can suit your needs? Perhaps the local government or school district is looking to fill underutilized space. Maybe a larger local nonprofit has excess space that they’d be willing to rent out to a mission aligned organization. Use your network to get the word out about your goals.
It is important to identify all key decision makers at the outset. Answering the following questions will help streamline the process:
- How involved will your board need to be? Does a sub-committee devoted to this task make sense to streamline decision making?
- How involved will your employees be in the process?
- How might a change in location affect clients, staff and how others perceive you?
- Does a move support your strategic plan?
Tip 3: Budget accordingly
Understand the market where you want your new offices to be. What are standard lease rates? What are the extra costs associated with the type of lease being offered (see below)? What concessions for a new lease are typically offered by landlords? Often landlords will offer a standard allowance for improvements to be made prior to you moving in. Often a rent concession is offered so that the first months don’t require a lease payment. The length of this ‘free rent’ period will depend on the length of your lease.
Once you understand costs you can begin to understand what’s affordable to you. Keep in mind that securing a comfortable space that suits your needs and allows for expansion will serve you well in terms of how you’re able to attract and retain staff and how you are viewed by funders and your clients.
As far as space goes, it’s best to budget about 150 – 200 square feet per person for private offices, 100 – 125 for semi-private offices and 75 for open office workstations. This is just a rough guide and only an architect can help you accurately plan for programming a potential space.
Tip 4: 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 (CAM) 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 cost factors can include:
- Costs for improving the space to suit your needs, known as tenant improvements or “TIs,” which may include contractor fees, labor, materials, architect fees, permitting costs, etc.
- Employee and guest parking fees
- Moving costs
- New furniture
Tip 5: Utilize the expertise of a tenant broker or other local expert
Real estate brokers have access to 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. Many brokerages have teams that specialize in serving nonprofit clients.
A broker can research and analyze the properties you are interested in. The 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. In some areas there may be a nonprofit consultant who can provide similar expertise or recommend an aligned broker.
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. 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 or best used for other purposes.
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 this 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. In most cases your landlord has a strong financial interest in keeping you in place. You should leverage that interest into a better deal for any renewal that you’re considering.
Tip 7: Consider Owning
Ownership is the only way to ensure long-term affordability and stability for your organization. Co-owning with other nonprofits can help you leverage additional savings by sharing common spaces such as kitchens and conference rooms. Ownership also potentially allows you to take advantage of exemption from real estate taxes and low-cost financing. The path to ownership is a challenging one that can take years to achieve but can also be one of the most rewarding and impactful strategies that your organization can take towards sustainability. Please reach out to The Nonprofit Centers Network at email@example.com to find out more about how to start on the path towards this goal.
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October 25, 2021 at 4:11 pm
We’re a new faith based 501(c)(3) non-profit in Tulsa Oklahoma. One of our major goals is purchasing property in the city or surrounding area. What suggestions do you have especially investing funds raised.
We also appreciate any suggestions for new organizations.
January 6, 2022 at 4:14 pm
What are your thoughts on founders purchasing a building to lease to the non profit? Any concerns with this strategy. I have struggled to find affordable space that work for us
April 17, 2023 at 11:49 am
I am a 501 (3)(c) and I am leasing a space in New Mexico. In New Mexico, services are taxes through the state. Ie landscaping contracts, trash hauling, management fee. Since I am a non-profit shouldn’t I be exempt from paying the tax on these services when paying my triple nets?