With commercial real estate lease deals, rental rates are more negotiable than you may think. It's often possible to negotiate a lower rate with landlords, provided you know what to ask for and how best to approach the negotiation. Follow these steps for success when striving to lower your rental rate.
1. Offer a Longer Term
Carefully evaluate your current and anticipated business needs to get a feel for just how long you can afford to be locked into a commercial lease. Often, you're willing to extend the term for longer, and your landlord will be more willing to provide a lower rate. After all, finding new tenants is a costly, time-consuming process that landlords want to postpone whenever possible. Having a sublease term added to the lease can give you the flexibility to lease all or a portion of your space to another company if your requirements change in the future.
2. Know the Going Rates for the Area
Knowing what companies are paying in both in your building and in similar properties can give you leverage when you're negotiating with your landlord. You may find that the rate you've been quoted is in line with the current market, but in many cases, landlords will initially price rental rates higher than the average in anticipation of negotiations.
3. Check the Math
Your rental rate will be calculated not just on the amount of square footage that you'll be occupying but also on a portion of the square footage that you share with other tenants. To determine the amount of rentable square footage used to calculate your rent, your landlord will use what's called a Load Factor. Ask your landlord how the Load Factor is determined to ensure that there is a fair method used to come up with the number. Then, double check the math to verify that the rate you've been quoted is correct.
4. Protect Yourself from Rate Increases
Having a low rental rate for the first year can be offset if you face a steep increase in costs each subsequent year. To avoid nasty surprises, have language added to your lease that places a cap on the amount that your landlord can raise the rent annually. It's also a good idea to have language clarifying who is responsible for mandated improvements for safety and ADA standard compliance as well as who will be expected to pay for any catastrophic damage, such as the entire roof suddenly needing replaced. This can help you avoid unexpected large fees in the future.
5. Enlist the Help of a Pro
Tenant rep brokers can give you an edge when you're negotiating a commercial lease. Their knowledge of the market proves invaluable when you're trying to justify a request for a lower rental rate. Tenant representatives are paid by the landlord after you sign the lease, so hiring one will not result in any additional costs. Plus, a rep can help you find space that is more in line with your budget if your negotiations prove unsuccessful.
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