Jun 05, 2017

What Can Be Negotiated in a Commercial Lease?

By Don Catalano


What Can Be Negotiated in a Commercial Lease?.jpg

When you read a list of tips for commercial leases, you are sure to see recommendations about negotiating fair terms rather than simply signing any contract as-is, but just what should you be negotiating when you sit down at the table with a prospective landlord? Here are some of the top areas where there is room for you to negotiate and make your lease as advantageous for your business as possible.


1.  Base Rent 

Head to the bargaining table armed with knowledge about what the going rental rates are for comparable units or buildings in your area. If you have on paper what other companies are paying, you can counter the proposed rate with a reasonable offer based on the numbers. Should the landlord be unwilling to budge, ask for an introductory rent discount to offset moving costs, and you could save your business money for the first few months of the lease.


2.  Improvements

Basic improvements like a fresh coat of paint on the walls and new carpets on the floors cost landlords little but can have a big impact on the visual appeal of your new office space.


3.  Increase Caps 

Most leases include an annual increase in rent. Your prospective landlord will likely not be willing to set that term aside but you can fight to have a fair cap placed on the amount of the yearly increase. This way, you won't end up with any nasty financial surprises when the rent adjusts.


4.  Subleases

Having the ability to sublease all or part of your unit to another tenant can be highly beneficial if your business needs change and you end up with unused square footage in your office. If a sublease clause isn't included in the contract, request that one be added.


5.  Multiplying Factor

Rent on commercial office space pays for more than just the usable square footage in your unit. You also pay for a portion of the shared square footage in the building. The exact amount is determined by the multiplying factor. Ask how your landlord calculated yours. If you have a small business, you may be able to justify having your multiplying factor reduced to lower the overall rent.


6.  Operating Expenses

Operating expenses such as taxes, repairs, landscaping, utilities and maintenance are passed along to your business as a tenant. Find out exactly what is included in the costs. If anything seems irrelevant to your business or unfair, ask to have it excluded. In addition, operating expenses are generally calculated using the previous year as the base year. As a result, you can often argue to have operating expenses eliminated from your rent for the first year until you have a real baseline to calculate them.


7.  First Refusal and First Offer

First refusal and first offer clauses can be highly beneficial for your company, and many landlords can be compelled to add them. With first offer, your landlord cannot offer your space to a prospective tenant at the end of your lease unless you notify them that you do not wish to renew. First refusal guarantees that your landlord must offer any new units in your building to your company at the same terms that would be given to any new tenant before they can show the space to other companies.


Other great CRE articles to check out:

5 Tips for Your Next Office Lease

3 Must-Follow Commercial LOI Tips

Tips Before Leasing Corporate Space


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Don Catalano

Don Catalano