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Commercial lease negotiations may seem like a simple process to outsiders because they only think about the square footage and prices, but the reality is much more complicated than that. If you want to make a solid agreement with the landlord, you have to understand the basics of commercial real estate business. We want to make this process easier for you, so keep reading to learn 11 tips for negotiating a commercial lease.
1. Know Your Situation
The first thing you need to do is to think about your situation concerning the budget and all the other more or less relevant lease conditions. For instance, if your annual lease budget is $30,000, you cannot afford to search for premium real estate in exclusive locations. On the other hand, you can think about the things you are ready to give up such as free Wi-Fi or other amenities.
2. Learn How the System Works
The next thing you should do is learn how the system works and figure out all of its features. The list of possible options is almost endless, but we can highlight the essentials here:
What is the rent and what will the other expenses be
Does the price change in the long run
Move in and move out dates
Rights and obligations of both parties
3. Research the Local Market
Another important advice is to conduct market research to get the notion of prices and commercial real estate offers in the neighborhood. After all, this is the only way to make sure that you are not asking for too much or losing money while negotiating the price with the targeted agent.
4. Get to Know All Lease Types
The price of renting a commercial real estate varies heavily based on lease types. This is why you must learn about every format and figure out what to expect from which type.
Generally speaking, there are a few basic lease options:
Gross rent lease: In this case, you pay the whole amount to the landlord at once and it covers the rent as well as utilities, taxes, repairs, etc.
Net lease: This is where you get to pay for certain incidentals directly, while the rent declines accordingly.
Percentage rent lease: The third option is to pay rent as agreed and also to give a negotiated percentage of your sales to the landlord.
5. Evaluate All Costs
As you probably know, commercial lease negotiations are not only about the rent but also about a wide range of incidentals. In such circumstances, it is necessary to evaluate all costs before making any sort of agreement with the landlord. Don’t hesitate to ask a landlord or a real estate agent to clarify incidentals and warn you about possible price increases.
6. Hire a Lawyer & a Tenant Rep to Help You
This one goes without saying, but a surprisingly huge portion of tenants fail to hire a lawyer to assist them in negotiations. It often turns out to be a big mistake because landlords are expert negotiators who can hide important information or misguide you, so you better prepare by hiring a lawyer.
You should also always engage a tenant rep broker. Tenant rep brokers are experts in the field, and can help you every step of the way. From knowing market rates, terms that would be help your company, negotiating with landlords, and much more, having a tenant rep on your side is a must-have.
7. Research the Targeted Property
The seventh stage of the process is essential because you have to check the property and confirm that everything is as presented. For instance, your square footage calculation might differ drastically from the one a landlord tried to promote. You should also think about other tenants, their relations with the landlord, parking spaces, and other details relevant to you and your team.
8. Negotiate Tenant Improvements
If you want to spend a substantial amount of time in a given property, you need to expect occasional renovations to keep the place clean and neat. But it doesn’t mean you have to pay for it all by yourself. On the contrary, you should negotiate tenant improvements as well to make sure that the landlord will reimburse at least a part of your costs.
9. Negotiate Additional Perks
If you find it too hard to bargain for a better price with the landlord, you can try to ensure a few perks for your business. For instance, you could demand free parking spaces for all members of the team, vending machines, or free Wi-Fi.
10. Review Termination Options
You are now very close to signing a deal, but there is one thing left to do before that. Namely, you need to review termination options and learn the conditions under which you or the landlord can terminate the contract. It will prevent potential disputes and help you to enjoy the lease peacefully in the long run.
11. Sign the Lease
The last part is the sweetest, as you should be satisfied with the lease conditions by this point. Of course, let the lawyer check the final version of the contract before signing it.
If you want to rent commercial real estate without exhausting the whole budget, you need to prepare for a few rounds of negotiations with the landlord. In this article, we discussed 11 tips for negotiating a commercial lease. Remember our hacks and make sure to use them – it could help you make a great deal very soon!
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