Tips for Tenants Negotiating a Commercial Lease – Part 1
Finding the perfect commercial space to lease can be challenging and there are many important factors to consider. If you’re still in the searching phase, we suggest starting here - 6 Steps To Choosing The Perfect Commercial Space to Lease.
Once you’ve decided on the perfect property and before moving in, you’ll need to negotiate your lease terms. Whether you’re leasing office space for your growing startup, a warehouse to store inventory or a retail storefront, your lease agreement will be one of the most important steps you take in running a successful business. Commercial leases are often three or more years and terms that aren’t beneficial to you can be costly for your business.
There are several types of leases. In some situations, you may agree to pay a smaller base rent but be responsible for certain costs and repairs. In other cases, your landlord may take on more responsibilities, but you’ll likely pay a premium. This Forbes.com article is an excellent resource for understanding the four main lease structure types.
Use the tips below as a starting guide when negotiating with potential landlords and keep an eye out for part 2 of this post with even more tips.
Enlist the help of a professional. Hiring a tenant representative will ensure that your best interests are represented during every phase of the negotiation. Commercial real estate brokers know the local market and can help you get a fair deal. Keep in mind that a landlord generally pays a broker's feesƒeve, so there’s no financial obligation on your part.
Evaluate the whole picture. Just like budgeting for renting a residential property, there are other associated costs beyond the rent. In a home or apartment, this includes things like utilities, but with commercial leases, you may be responsible for Common Area Maintenance (CAM) fees or other costs associated with a particular property. This is normal but something you need to consider when figuring out an accurate monthly budget and evaluating whether the contract will work for you.
Plan for the unexpected. No business owner wants to think of not succeeding, but if something unexpected happens, you don’t want to be in a tougher spot than necessary. Consider asking for lower early termination fees or including a sublease clause, so that you can recoup some funding should you go out of business. On the flip side, these clauses will also come in handy should your business bloom, and you need to move into a larger space sooner planned.
Think about the competition. If you’re renting space for retail, a restaurant or even something like a fitness studio, you probably don’t want a similar business setting up shop in the same center and you can actually protect yourself by including a clause in your contract that prevents your landlord from renting to someone that would be a direct competitor without your consent.
Everything is negotiable. Commercial properties are more complex than residential rentals, often leaving more room for negotiation – be firm and also willing to make concessions. There may be certain things that you know you’ll need for your business. If the landlord isn’t willing to budge, you might need to walk away but, in our experience, if both parties are willing to give and take, landlords and tenants are able to enter into a mutually beneficial relationship for years to come.
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