5 Tips on How To Negotiate A Commercial Lease
If you’re looking for tips on how to negotiate a commercial lease, look no further! In this article, we’ll give you 7 essential tips that will help you get the best possible deal. When my husband and I first started our business, we had no idea how to negotiate a commercial lease. We were young and inexperienced, and the thought of negotiating with a landlord was daunting. Thankfully, we found an experienced broker who helped us through the process step-by-step. With her guidance, we were able to successfully negotiate a great lease for our business.
What Is a Commercial Lease?
A commercial lease is an agreement between a landlord and a tenant that allows the tenant to use a property for business-related purposes.
A commercial lease is a legally binding contract between a lessor and lessee for the use of office space, an industrial property, a warehouse, or other similar facilities for business purposes. The contract must contain essential elements of a contract for it to be legally binding, which are outlined below.
This type of lease must contain the essential elements of a contract, which include an offer, acceptance, consideration, and intent.
Different Types of Commercial Leases
There are four different types of commercial leases.
1. Single Net Lease or Net Lease: The tenant only pays for utilities and property taxes while the landlord pays for maintenance, repairs, and insurance.
2. Net-Net or Double Net Lease: The tenant pays for utilities, property taxes, and insurance premiums for the building while the landlord pays for maintenance and repairs.
3. Triple Net Lease: The tenant pays for all costs of the building while the landlord pays for structural repairs.
4. Full-Service Gross or Modified Gross Lease (also called Modified Net Lease): The tenant and the landlord equally split structural repairs, utilities, property taxes, maintenance, repairs, and insurance in a single base rent. This is the most common type of commercial lease when it comes to multi-tenant buildings.
5 Tips on How to Negotiate a Commercial Lease
Here are some ways to negotiate your commercial lease agreement.
1. Arm Yourself with Knowledge
Knowledge is power in negotiations.
First, you must arm yourself with knowledge about the commercial real estate market in your area. Make sure to do your research and collect information about the costs of comparable properties. This way, you will be able to negotiate a fair price.
It’s important to talk to other business owners in the area about security issues, as they could have an impact on your business.
2. Think Long Term
Long-term tenants have the upper hand in negotiations.
It is in the best interest of the landlord to know that the tenant intends to stay long-term to make concessions. Landlords do not want to negotiate every year.
Thus, if you’re willing to commit to a long-term contract, you can probably negotiate for lower monthly rates.
3. Review Termination Conditions
Review the termination clause in your lease agreement to understand under what circumstances either party may end the lease.
If your landlord decides to sell the property, you may still be able to stay if the new landlord agrees to honor the lease terms. If you skip out on paying your monthly rent, they may give you the notice to pay or vacate.
An ‘Early Termination Right’ allows you to break your lease before the contract is up.
If you do not negotiate an early termination right, you may be subject to contractual charges if you need to terminate the lease prematurely.
4. Ask for Favorable Clauses
Request changes to the lease that works for your business’s benefit.
If you anticipate the need to sublease the space in the future, you can request that your landlord include a clause in your lease agreement allowing for this. Having such a clause in place can provide peace of mind and flexibility should circumstances beyond your control arise that necessitate relocating or closing your business.
You could also try to negotiate with the landlord for them to renovate the building before you move in, or provide some parking space for your employees.
5. Ask a Lawyer to Broker for You
It is extremely important to consult with an attorney when negotiating a commercial lease agreement.
A lawyer who understands commercial leases can be extremely helpful when negotiating your lease. They can help you get favorable terms and save you money in the long run.
You could also get a tenant rep broker who specializes in tenant representation.
A tenant rep broker can give you insights into the market and negotiate on your behalf. These professionals understand the market dynamics well and can even show you hidden opportunities.
Common Mistakes When Negotiating a Commercial Lease
There are several mistakes that businesses make when negotiating their commercial lease. We will break down many of these mistakes and what impacts they may have. It is important to consult with a business attorney to get specific advice relating to your situation.
Recycling lease agreements. Many landlords use outdated lease agreements that may not accurately reflect the actual space due to remodeling, repairs, or simply measurement errors.
Failing to verify the space you’re renting. When leasing commercial space, be sure to clarify what is included in the usable square footage. Common areas such as lobbies, hallways, elevators, and loading docks are often not included in the usable square footage but may be charged separately. Avoid overpaying for your space by clarifying what is included in the lease agreement.
Ignoring operating expenses. When signing a lease, be sure to ask about the company’s operating expenses. Find out if you are responsible for items such as taxes, utilities, maintenance, landscaping, and repairs. If there are items that are not pertinent to your “usable” space, try to negotiate them out.
Allowing an escalation clause to increase your rent. As a tenant, it is important to be aware of escalation clauses in your lease agreement. These clauses allow for the base rent to be increased over a period of time and are common among landlords. However, they can also be costly for tenants if not negotiated properly. Be sure to discuss a “cap” on the amount of each year’s increase with your landlord, and try to exclude a rent increase for the first year.
Letting your emotions affect business decisions. Don’t let a time crunch or lack of experience force you into signing a commercial lease agreement. Stay calm and collected, and don’t negotiate in “panic mode.”
Relying on your landlord’s word. Before entering into lease negotiations, be sure to obtain permission from your city’s zoning officer. Even if your landlord approves of the zoning, if the town does not allow you to enter the space you are considering, it is not worth negotiating a lease, no matter how good the deal is.
Getting attached to a specific property. Don’t put your business at a disadvantage by assuming one commercial space is make-or-break. To enter negotiations, you’ll have to know when to identify a fair deal and when to walk away, even if you’re in love with the property.
Consulting with any lawyer. When it comes to commercial leases, you want an attorney who has extensive experience negotiating on behalf of businesses. Checking references is a good way to get an idea of whether or not a lawyer is up to the task. A great real estate lawyer will understand the ins and outs of your business and be able to advise you on how to get the best deals for your particular situation.
Whether you’re renting or leasing, always make sure to read through every single line in a rental agreement. Don’t sign anything until you’re sure you understand it.
Commercial leases are serious commitments and you want to make sure you get the best deal possible.
If you’re looking for tips on how to negotiate a commercial lease, look no further! In this article, we’ve given you essential tips that will help you get the best possible deal. With these in mind, you’ll be well on your way to negotiating a great lease for your business.