Safeguards to Negotiate Into a Commercial Property Lease Agreement

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If you’ve decided to lease your next commercial property, it is wise to hire an experienced broker and attorney to help you complete the transaction. However, even before you hire the pros, keep these safeguards top of mind when you start to consider your lease negotiation.

Leave yourself plenty of time.

The outcome of your lease negotiation will reverberate for the length of the lease and likely well into the future. Savvy business owners leave themselves plenty of time to consider multiple properties, properly evaluate whether a space is optimal for their business, and even leverage one landlord’s offer against another to ensure they get the best deal.

And remember this, it will take time - sometimes a few months - to complete the lease negotiation too. Without proper lead time, you may be forced to accept unfavorable lease terms just to get a deal done. 

Consider the effects of long-term vs. short-term.

Many tenants will trade a good price on rent for a longer term lease. For businesses that are unlikely to need additional space in the future and feel confident that the location will continue to enhance the business, the savings of a longer term lease is attractive. However, business owners must be wary of future unknowns.

If the business relies on foot traffic, what happens if an “anchor” tenant nearby moves out? Will there be upcoming construction work nearby that will hurt your business for a period of time? What is the crime rate trend? There are many unpredictable conditions that will impact a business, so entering into a long-term lease should not be done without careful consideration.

Who is responsible for repairs, upgrades, maintenance, taxes, and fees? Every detail can be subject to the lease negotiation, so you need to know everything you’re paying for before you sign. Who pays utilities? Who pays for landscaping? What happens if the HVAC system needs an annual check up? If your business requires an upgrade to the wiring, who pays for it?

If you are responsible for these items, be sure you examine the past few years’ bills, and their maintenance history. Knowing what you’re responsible for in repairs, upgrades, maintenance, taxes and fees may help you in the lease negotiation when you decide on rent.

Here are some additional tools to help select properties.

Know the Language.

Be sure you read the lease agreement carefully and fully understand its terms. Are you signing a “triple net” lease, whereby the tenant is  responsible for all repairs and maintenance? Is it a “service office” lease, where the landlord pays for most operational repairs not necessitated by the occupant. Also, be sure you understand how the rent is calculated. Are you paying for “leasable” square footage rather than “usable” square footage?

These are but a few considerations when you enter into a lease negotiation.

Be sure to also check the agreement for subletting, escape penalties, fixed-rate renewal opportunities, and any limits on renovating or adding on to existing space to accommodate future business growth. The terms you negotiate in your lease can support or decimate your business. But if you take your time and bring in the experts, your lease can become a significant company asset.

Get more free tips on commerical real estate in our free guide for small to midsize businesses.

  Commercial Real Estate Market | Closing the Deal

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