May 19, 2015 9:05:00 AM

6 Steps to a Successful Commercial Lease Negotiation

By Don Catalano

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Commercial_Lease_Negotiation


If you are responsible for finding new spaces for your company, you will have to become a master at commercial lease negotiation. While the process might seem complicated, like most business activities, when broken down into steps, it can be quite manageable.

 

Step One: Learn About Leases

The first step in learning about commercial lease negotiating is to learn about what you'll be negotiating. One of the best ways to learn about leases is to read a few of them. Dig through your company's files and find some lease documents so that you can get familiarized with the language and terms that they contain. Typically, leases discuss:

  • What you pay in rent

  • What other expenses you pay

  • How your rent changes over time

  • When you move in

  • How long you can stay in the space

  • Your ability to assign the lease or sublet the space

  • Your rights and obligations when the lease is running

  • Your landlord's rights and obligations

  • Your rights and obligations when the lease expires

  • What your landlord is throwing in for free

 

Step Two: Learn About the Market

Once you know what to look for, the next step in the commercial lease negotiation process is to find out what is generally normal in your market. While the type of research you do can vary, here are some of the common commercial lease negotiation factors to try to learn about:

  • Rental rates for similarly sized spaces in comparable buildings

  • Rent increase norms

  • Lease types (gross, triple net, modified gross)

  • Typical lease and option terms

  • Typical landlord concessions (free rent, tenant improvement allowances)



Step Three: Decide What You Want

Once you know what is normal in a commercial lease negotiation, you can start to formulate a plan and decide what you would like to ask for. For instance, you might know that 5,000 square foot class A office spaces usually rent out on five-year terms at $32 to $35 per square foot gross with five months of free rent and $20 per square foot in TI allowances. If you are looking for a ten-year lease, which is typically more landlord friendly, you might ask for $31 rent, 6 free months and $30 in allowances.

As you decide what you want to ask for, remember one of the cardinal rules of commercial lease negotiation. To get what you want, you have to ask for a little more. So if you want to end up with the above lease term, you might go in asking for $29 rent, 9 free months and $35 in allowances.

Step Four: Write an LOI

Once you've decided what you want, write it up in a letter of intent and deliver it to the landlord. While the LOI isn't technically a binding document, putting something in writing is an important part of moving a commercial lease negotiation forward.

Step Five: Negotiate Back and Forth

After you've delivered the LOI, the landlord and his or her team will look it over. Usually, they will send back a written response, changing your terms to something that they find more favorable. You and the landlord will go back and forth a few times and eventually (hopefully!) come up with a plan that works for everyone.

Step Six: Sign the Lease

The last step of the commercial lease negotiation process is getting the lease signed. Typically, the attorneys will go back and forth about the legalese, but since the business points were already decided in the LOI negotiation, this should be relatively easy. Once it's ready, everyone executes the document and you become a new tenant. 


More Commercial Lease Negotiation Articles:

Winning at Your Next Commercial Lease Negotiation

3 Tips for Winning Your Commercial Lease Negotiation

Lease Negotiation Tips for Corporate Real Estate Tenants

 

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Topics: Commercial Lease Negotiation

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Don Catalano

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