Negotiating a Commercial Lease: Dos and Don'ts

Posted by Mary Ann Castro on Wednesday, December 3rd, 2014 at 7:40am.

negotiating-a-commercial-leaseNegotiating that first commercial lease agreement is one of the most important steps in starting your new commercial enterprise. When it comes time to renew a commercial lease, your negotiating power will depend on how well you negotiated their first lease.

 

That being said signing the perfect lease takes time, and the right attitude. Here are some key things to consider when negotiating for your perfect space.

Do: Hire a Professional (Not the Listing Agent)

While this may seem obvious, hiring a commercial real estate broker has its benefits. They know the market, and can help you find the right property for your business. Hiring a professional also gives you greater leverage during negotiations. Never have the listing agent or property manager show you a potential space. The listing agent represents your future landlord, which means his actions are usually in his client's interests. Also, do you really believe someone is going to negotiate aggressively on your behalf, when the sale affects their commission?

Do: Negotiate Several Offers at the Same Time

Creating competition for your tenancy is one of the most effective ways to negotiate a better commercial lease agreement. By negotiating on several different properties simultaneously, you're forcing the property owners to pursue you, and not vice versa. Play lease proposals against each other in order to leverage a best possible deal.

Don't: Sign the Offer to Lease As Is

You may be approached by the listing agent with a lease proposal or Offer to Lease. Resist the urge to sign it. If you do, it means that the terms and conditions of the lease are final, and not open to any changes down the road. That's what the property owner wants. Instead, have your representative write in a clause which grants you the right to request changes in the future. Also, since the property owner is offering you a lease proposal, and not the other way around, you are in a better position to make a counter offer.

Do: Know Your Lingo

Subtle differences in wording can result in opposite outcomes when it comes time to renegotiating your lease. Before signing your first commercial lease agreement, make sure that you understand the lingo. For example, an extension clause varies from a renewal clause from a legal perspective. A lease extension honors any personal covenants tied to the original lease. In a renewal situation, the tenant's original terms expires along with the lease. In short, a new lease is created, which may not include all the bells and whistles of the original deal. To avoid problems, make sure the language used is clear and explicit.

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