May 20, 2020

8 Things to Keep in Mind When Negotiating Your Commercial Lease

By Don Catalano

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8 Things to Keep in Mind When Negotiating Your Commercial Lease
Negotiating your commercial lease goes well beyond getting the right rent for your space and the perfect lease term. As you and your tenant representative work through the proposals you get from landlords, make sure that you pay attention to all of the details. While this isn't a comprehensive list of what you should consider, here are eight things that are easy to miss -- and that make a big difference.

 

1. Rent Abatements

When you are first negotiating your commercial lease, most landlords will offer rent abatements for a period to help you get moved into your space. Free rent IS free money, and you get it right upfront, so the more abatements you can get, the lower your overall occupancy cost will be. Don't be surprised if the landlord adds your abatements to the end of the lease, though. For example, this would turn your five-year lease with six free months into a 5-and-a-half year lease.

 

2. Tenant Improvement Allowances

In addition to rent abatements, many landlords will offer tenant improvement allowances to contribute to the cost of customizing your space.  TI allowances are frequently use-it-or-lose-it concessions, so if you are able to take a space as-is, they might not be valuable for you. On the other hand, if you need to spend a lot of money on your space, the more you get from the landlord, the less it costs you.

 

3. Renewal Options

While your lease's expiration might seem like it's a long away, it will come sooner than you expect. Negotiating your commercial lease renewal options at the beginning will give you more control when the initial term comes to an end. Having a good option lets you stay, renegotiation or leave. Without options, though, the landlord is in control of your destiny.

 

4. Assignment and Subletting

On the other hand, you probably also don't want to think about your lease needing to end early. While this probably isn't your goal, the business world can also be unpredictable. Write your commercial lease now to give you the flexibility you need to either hand your lease off to someone else or, at a minimum, to find another tenant to help pay your rent in the event that you need to fully or partially vacate your space before your lease expires.

 

5. Parking

There are two different factors that come into play with parking when you are negotiating your commercial lease.  The first is the economics of parking -- make sure that what you agree to is affordable for your company, its employees, or both and look carefully to see how your cost of parking may change over the term of your lease. The second factor is to make sure that you have enough parking allotted to meet your needs now and in the future.

 

6. After Hours Charges

A $40 or $50 per hour charge for after hours access to HVAC, lighting or elevator service might not seem like a lot of money. But if your employees regularly stay 2 hours past the end of the business day and work one full weekend day, $50 per hour could add up to $5,600 a month, assuming that the month consists of four work weeks and four weekend days. 

 

7. Signage

While signage isn't always as big of a concern in negotiating your commercial lease for office space as it might be in the retail arena, make sure that you get the rights that you need to let the public know where you are located.

 

8. Building Rules

Finally, pay careful attention to the building rules.  While they are usually buried in an appendix at the back of the lease document, they can be very impactful. Their requirements and limitations can define how you use your space, what your employees can do, how you enjoy the building's amenities and which vendors you may be required to use. Usually, your tenant representative can help you find a solution around the rules if something is unacceptable, but this should happen while you're negotiating your commercial lease instead of after you sign it.

 

Here are a few more articles we think you'll like:

COVID-19 & Retail Space

What to Know About Mixed-Use Space

8 Commercial Lease Terms That Give You Options

 

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Topics: Commercial Lease

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Don Catalano

Don Catalano

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