How to Negotiate a Commercial Lease

So you have been looking for commercial space to rent and finally ready to pursue one that fits your ideal size, budget, and location.  Everything is negotiable, but now you may be wondering what to negotiate a commercial lease in a way that helps you capitalize on your strengths as a tenant to ensure you get the best deal possible.  When preparing to negotiate a commercial lease there are a few things you must consider:

Get You and Your Business in a Position of Strength

It's important for you to think about the strengths you have as a tenant because all tenants are not created equal.  If it's a hot market and you find yourself competing for space you are more likely to get the space and possibly win concessions if the landlord thinks you are a great candidate for the commercial property.

  • How strong are your financials?  The landlords perception of your financial strength will determine whether you get the space and the amount of concessions they are willing to give (if any).  They typically will want to see one or more of the following:  personal tax returns (if sole proprietor, llc, or small corp), profit/loss statement, balance sheet, monthly cash flow, etc..
  • Get letters of recommendation from current and prior landlords if you have a good relationship and have paid rent on time.  Never leased space before?  Consider getting references from your bank, former business colleagues or employers, or anyone else with some clout.
  • Who are the existing tenants?  Is your business compatible or complementary to them?  Show the landlord how your tenancy can help attract new customers for others or provide services needed by others in the building.
  • If your business is new have a business plan with realistic goals for forecasting your future revenue.
  • Would your business improve the buildings image?  Are you planning on building out the space really nice that would make the space more desirable for the next tenant in the event you decided to leave?

Know What Your Deal Breakers Are

There are many things you may be willing or not willing to pay for or agree to however it's important to understand your threshhold, as well as be knowledgable about the current state of the real estate market & economy and what other comparable buildings are quoting and actually charging for rent.  Depending on the size of your company and financial situation, your business needs, and the state of the market you'll want to negotiate deal points that appear unreasonable or inadequate.

  • What is the maximum rent you can afford OR are willing to pay?
  • How many square feet of commercial space are you will to rent?
  • What is the maximum lease term length are you willing to commit to?  You need to determine the term length that makes sense for your current and future business needs.
  • Do you need options to renew or extend the lease?
  • Are there options for you to expand your space size if needed?
  • Move in Date: How soon or late can you move in?
  • Who pays for tenant improvements?  How much are you willing to come out of pocket if necessary?
  • What are the landlords security deposit requirements?
  • Is there anything your business does that would potentially be restricted by the landlord?
  • How may parking spaces are you allotted & what are the costs if any?

Know current commercial real estate market conditions

  • What are other comparable buildings quoting for lease rates?
  • Do you know what types of deals are actually being done in the market?  Your tenant representative (if you have one) should know.
  • How is your local economy doing?
  • What are the actual average lease rates for the property over the last 5-10 years?

Commercial Lease Negotiations

  • Always ask for more than what you expect to receive however be realistic and consider current market conditions, comparable properties, and other deal comps that you or your tenant representative find.  Too many unreasonable low ball offers will make some landlords not want to work with you
  • Get 2-3 commercial lease proposals from different buildings that you are interested in.  Creating competition between landlords will help ensure the best deal and in the event one falls through you have backups to consider.

 

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