Important Steps in Commercial Lease Negotiations

If you are opening a new business or expanding an existing one, it is essential to understand the art of commercial lease negotiations. This is best for your budget and for fulfilling the needs of your business, your product or services, your employees, and more.

Here are important steps that will benefit you when negotiating a lower commercial lease rate with landlords.

The Basics of Commercial Leases

Before you even think of negotiating a commercial lease, do your homework and learn more about what a lease is itself and what it entails, including the language and content.

Most leases will discuss:

• Rental price and any other expenses included
• Any changes to rent over the time of your lease
• The date you move in and when your lease expires
• Your requirements and rights during the lease, such as whether or not you can sublet the space, and after the lease expires
• The landlord’s rights and obligations during the lease
• Any extras or bonuses given by the landlord, pro bono

Research the Market of Your Commercial Lease

You cannot negotiate a commercial lease rate before actually researching the current rates in the market where your commercial space is located. Typically, landlords will list the rent higher than the market average, so dig in to find out the answers to these questions for added leverage:

• What is the rent for commercial spaces that are similar in size?
• What are the standard lease types and option terms?
• What are the norms for rent increase in the market?
  What are some discounts that landlords in the area concede to?

What are Some Factors of Good Negotiating?

After you have done thorough research on the basics of a commercial lease and the average rates in your market and decide what you want on your terms, you are now armed to begin negotiating with a landlord on your potential commercial space.

Start by writing a letter of intent (LOI) and send it to the landlord to put your wants and needs in writing and jumpstart the negotiations. These could include:

• Asking for a longer-term lease. Finding new, reliable tenants is stressful, time-consuming, and costly for landlords, so if you offer to extend the lease, the landlord may offer a lower rate.
• Asking for a sublease term. Even if you are unsure of your long-term future, a sublease option could give you more financial flexibility.
• Asking how the load factor is determined. This is the amount of the rentable square footage you are occupying, compared to other tenants.
• Asking for a cap on the rent increase each year. This will protect you from surprise costs.
• Asking who is responsible for any improvements or damages. Again, this protects you from any unexpected expenses and your employees’ safety, including ADA-mandated modifications.