How to Negotiate a Commercial Lease Effectively?
Renting commercial property may be one of the most expensive business activities. So, it is important to know various aspects of commercial real estate for an astute negotiation. Here are some game-changing ideas to help you strike the best bargain, which will impact the bottom line of your business for years to come.
When negotiating a commercial leasing agreement, the odds are generally stacked against you. As the landlord is well-versed with the process, it becomes necessary to walk the slippery slope cautiously.
Signing a business lease is a significant milestone in the entrepreneurial journey. Its importance in corporate success cannot be overstated. The landlord will aim to maximize the earnings from his/her property and may incorporate certain crucial conditions. It is critical to note that practically every clause in the lease is negotiable.
What is a Commercial Lease?
A commercial lease is a legal agreement or contract that allows a company to rent a commercial property to conduct business from that location. The legally binding contract between the landlord and the business tenant is to use the property solely for commercial purposes, such as an office, warehouse, industrial complex, or other comparable facilities. The five types of business leases are:
- Net lease
- Double net lease
- Triple net lease
- Percentage lease
- Gross rent lease
What Should a Commercial Lease Include?
Some key features of a business lease to look for are:
- Rent amount
- Security deposit
- Exterior Appearance
- Maintenance and renovations
- ADA compliance
- Lease term/type
- Exclusive use
- Personal guarantee
Any first-time entrepreneur should consider expert assistance and consult a lawyer with extensive contract law knowledge before signing any agreement.
Tips To Negotiate a Commercial Lease
Here are some helpful tips for negotiating a commercial lease that works best for your company.
Evaluate Your Space Requirement: Carefully determine your company’s current and future space requirements. Second, examine your budget, preferred location, and available amenities. If you are unsure about your company’s prospects, a short-term lease may be a wise option.
Do Your Homework: Try to learn everything you can about the commercial real estate market in your chosen location. The terms may be widely different in each state and region. Gather information regarding security, crowds, neighborhood, and other vital aspects of the property. Collect information on the prices of comparable properties as well. All this data will prove to be very useful when negotiating a fair contract.
Think of the Long-Term: If the property is suitable for your business and the landlord has a good reputation, you may consider long-term leasing. Tenants who sign long-term rentals have greater bargaining power at the negotiation table. Landlords do not like to negotiate with a new tenant every year and may offer some concessions in exchange for a longer-term contract.
Learn the Real Estate Terminology: Premium property in a desirable location offered at a reasonable rent can significantly propel your business. However, before signing an agreement, look for any hidden expenses. This will prevent you from being stumped later. These additional costs include real estate taxes, insurance, electricity, maintenance, and operation expenses. Check the contract for the amount of rentable space. You may be charged extra for the unused area. You can bargain to pay rent only for the usable space.
Review Termination Clause: Read the lease agreement carefully to understand the termination clause conditions. What if, for example, the building is completely sold out? What happens in the event you miss paying rent for a month? What if you wish to grow and need more space? Can you sublet the property if your business operations contract? You need to consider all possibilities when bargaining for an early termination clause.
Negotiate Leasehold Improvements: Before you occupy and begin using the space, you may need specific modifications to fit your business. Request for concessions if you plan to take on the expenses of any repair or remodeling of the space. This might include things like reimbursement for alterations costs in the form of a rental waiver for a month or two in the agreement.
A commercial lease is essential before beginning the operations of your business. The terms of the legal agreement establish the middle ground between the landlord and the tenant, and the penalties must be fulfilled if either of them breaches the contract. Commercial leasing is a complicated procedure that should be handled by a legal professional who can negotiate on your behalf and get you the best price and terms.