Contrary to popular belief commercial leases are negotiable. If you know what to ask for and how to ask it’s possible to negotiate concessions such as free rent, reduced base rate, expansion options, etc. But you have to try. If you don’t have the time, don’t know the market, or are just uncomfortable negotiating on your own then consider hiring a commercial real estate firm that specializes in representing tenants. A good commercial lease negotiator an ensure no mistakes are made and that you get the best terms and conditions. If you are adamant about doing this on your own we have written a bunch of articles such as this one that can help.
Below are a few tips to consider when negotiating a commercial lease.
Negotiate more than one location at the same time
To give yourself leverage it helps if you negotiate more than one option at the same time. If the landlord knows you have other options they are more likely to give you better concessions. This gives you the ability to walk away if they won’t work with you. Also, In a hot market you need to have multiple options in the event another company offers the landlord a better deal than you.
Get a lower base rate by offering to do a longer lease term
You need to understand your current and future needs before doing this. If you are unsure of your business growth stick to shorter term (3 years or less). However if your company is more established and / or the landlord can accommodate future growth you should be able to negotiate a lower base rate in return for a longer lease. This will also help get you more tenant improvement allowance also.
Protect yourself from operating expense increases
Operating expenses are the taxes, insurance, and maintenance (aka NNN) in commercial leases. Most leases will be quoted as some base rate + NNN. Operating expenses will typically increase or decrease every year depending on the market you are in. In hot markets some buildings end up having huge increases in taxes. To protect yourself you want to try to negotiate to have those capped to avoid facing steep increases. For example ask that the operating expenses be capped at no more than 5%.
Find out what rates other tenants are paying
If you can find out what other tenants are paying in the building you are interested in as well as other comparable buildings close by. The more market knowledge you have the better equipped you are to negotiate.
Ask for a cure period
A cure period is the time you have in a lease to rectify a breach or default. Make sure you read the lease to see if there is one. If there is not you want to negotiate hard for this. With automatic banking this should not occur however If for whatever reason a tenant forgot to pay the rent they could be subject to legal action or fines without a cure period in the lease. Landlords are typically OK with this however if you don’t ask you won’t get it.
Make sure you have the ability to sublease and assign
If your company ever needs to downsize, be forced to move because the building can’t accommodate your expansion needs, or merges with another company you need to have the ability to sublease and/or assign the lease. Don’t get stuck with space you don’t need or use and make sure you are able to assign the lease to the new company entity in the event of a merger or acquisition.
There are many more things you can negotiate however this can get you started. If you are trying to renegotiate a commercial lease that has already been executed that is possible as well.