Lease negotiations against a savvy property owner or leasing agent for any type of commercial space can be a challenge. The actual preparations for making your business look attractive when negotiating a lease begins from the moment the search commences for rental space.
To make the company an appealing candidate and gain as much leverage as possible during negotiations, conduct a thorough due diligence process. Once management decides on a location, determine the amount of space required for current operations and future expansion. In addition, obtain data on recent commercial leasing deals in or around the property where you intend to rent space.
It also helps to understand two of the most important elements of commercial space lease transactions:
- landlords want to negotiate the terms of a lease to their advantage
- tenants should remember that they can always negotiate substantial improvements to the lease terms.
Armed with the right information, metrics and insights, commercial tenants can formulate a strategy that enhances the appeal of their business tenancy. Here are some other tips that can make your business more appealing.
Prepare Lease Documentation
Whether you are leasing for the first time or looking to move to a new space, make the process as fast and smooth for the landlord as possible. Call the property owner to find out exactly what information or documentation they require to thoroughly complete the application. This gives you an advantage over less-prepared candidates.
Generally, a commercial lease applications requires the following items/information:
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Name of company, business phone number and current business address
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Company CEO
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Person signing the lease - birth date, social security and driver’s license numbers, email
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Contact person - phone number , email,
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Financial, income and banking information
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Credit references
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Emergency contact information
Make a list of references— names, telephone numbers and email addresses of landlords, colleagues, employers and friends. Take a blank check to write out a security deposit if needed.
Focus Lease Negotiations on Total Rent
Most commercial tenants who represent themselves in lease negotiations mistakenly approach the negotiating table with the objective of getting the lowest rent possible. The correct way to evaluate rent is from the perspective of what the landlord is attempting to achieve—total rent value.
Creative Leasing Technique
Be upfront about your needs. If you have a tight cash flow situation but project revenues to grow exponentially in a few years, negotiate a cheaper rent for the start of the term. Structure the contract so that the landlord recovers some of the rent on the back end. Landlords tend to be more flexible in markets with high vacancy rates.
Expansion Clause
Landlords prefer to have maximum cash flow and long-term leases for their properties. For business owners who expect to experience significant growth over the initial term of the lease, put into the contract a series of expansion options that allows the tenant to take over a pre-defined space during the lease, or add a “Right of First Offer” clause. Landlords like having established tenants expand into open space to eliminate marketing and loss rent.
Balancing the Company’s Interest
While it’s critical for commercial leasing tenants to make their companies attractive to landlords, tenants must also protect their investment and long-term business interests. Lease negotiations should include add-on provisions that not only protect business operations and profitability, but allow the company a suitable exit strategy.
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