Tips for Negotiating a Commercial Lease

If you want to start a business, you will most likely need a commercial lease. Even if you already have a lease going, you might be interested to know how to negotiate a better one next time. And that is what we are going to teach you in this article, the fine art of negotiating a commercial lease! There are five easy steps you need to follow and we will walk you through them all. So, without further ado, let us continue to the steps.

Negotiating a Commercial Lease – Five Easy Steps

When you get to the process of negotiation, you need to have all the following steps in mind:

  • What is the duration of the lease?
  • Is it comparable to similar leases?
  • Are there any hidden costs?
  • Can I get any favorable clauses?
  • How does the termination clause look like?
A timepiece on a desk
The duration of the lease is one of the most important terms.

Yes, they are both questions and steps! By going through them in order, and answering all of them, you will have a clear image of what kind of a lease you are dealing with. Often you will just walk out after just two or three steps because you are not satisfied with the answers.  You see, most of the people do not bother asking these questions, they just assume “oh, its just a lease” and think that everything is going to be alright. Sometimes you will get lucky and all that needs to be done is call your Short Hills movers and move in, but that is usually not the case.

Usually, that is a good way to get scammed/walked over.

However, just asking these questions does not mean much if you do not know what to do with the answers. Therefore, we will extrapolate a bit on each of these.

Negotiating a commercial lease – the duration

This is a term that you can usually choose for yourself, once you finished choosing your location and applied for a real estate lease. Depending on the nature of your business, it can go from a year to a century. Most small businesses start with a lease of one or two years, though. Make sure to have the option to renew, as well. One or two years are usually the best option because you are not resigning yourself for too long and if the going is good, you can always renew.

However, if you are dependant on that exact location for your business, you need to negotiate a lease that lasts longer. Or perhaps it is expected that the rents are going up in the future. These are the cases where you will want to nail down the lease agreement for quite some time.

Is it comparable to other rents?

Perhaps the most important part of a commercial lease is the amount that you need to pay per month. So, do not be lazy, do some homework! Research a bit on how much other businesses are paying for leases in your area. While you may not get exact information, you will at least have a clearer picture once you’re done with it. Your movers Glen Rock may offer some assistance in this matter, too. This will give you negotiating power and you will be able to come to a better deal. You will be able to balance rent increases with the initial ones and by having knowledge about the similar rents, you will avoid many mistakes.

How about hidden costs?

If you never looked at a lease agreement, you may not know that there are two major types of leases. “Gross” lease and “Net” lease.  A gross lease includes every single cost in your rent and is considerably more expensive. A net lease makes you responsible for all the other costs, as specified in the lease agreement. Usually, you are looking at things such as upkeep or maintenance.

Now, this can be really tricky at times. If your company is responsible for maintenance, there are about a million things that can go wrong. You need to carefully examine everything that you will be taking care of, so you know how much it will cost you, approximately. Make sure you track all the commercial trends, as well. For example, let’s say that you are responsible for maintaining fire extinguishers. You think “oh, that is fine, not much to do, sign the lease”. And then you figure out that someone is demolishing fire extinguishers on a regular basis. Your costs go way up.

Bottom line, always investigate the hidden costs!

Stack of dollar bills under shiny bricks
Not everything is colorful and shiny. Look out for hidden costs!

Can I get favorable clauses when negotiating a commercial lease?

All the lease agreements are modifiable. If your landlord is completely unwilling to modify any parts of the lease, you should ask yourself if that is what you are willing to deal with. But, landlords are usually quite forthcoming on this matter. For example, you can ask to be able to sublease a property, enabling you to have some safety should you need to relocate or even close your business.

Another one of useful clauses to negotiate can be a restriction clause. This one prevents your landlord from renting out commercial space to any businesses that are similar to yours. Then there is a co-tenancy clause. This particular clause will allow you to break your lease if another tenant leaves the premises.  There are many other favorable clauses that you can get when negotiating a commercial lease, you just need to either do some research or be creative. The sky is the limit!

The Termination Clause

This is something that you need to check carefully and thoroughly. Read the parts that cover the termination of the lease several times. Make sure you understand the terms perfectly. Ideally, you need to have several clauses and terms that allow you an easier time should problems arise. For example, you want to have a clause that gives you ample time to pay before you get evicted. And you should agree on what the penalties for early termination will be. All in all, this part of the lease is quite flexible and you need to make sure that it is in line with your needs.

Hand drawing on paper
Termination needs to be clear and concise.

In Conclusion

The most important thing about negotiating a commercial lease is to read the whole document and to understand it. You need to know what benefits you are getting and what are your responsibilities. A commercial lease can be changed and it should be changed, according to your needs. There is no one-size-fits-all when it comes to commercial leases!

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