Here are five tips for negotiating a great commercial lease.
1. Evaluate the Current Rates for the Area
In many cases, landlords will initially price the rental rates higher than the market average in anticipation of negotiations. Know what other businesses are paying in your building and area to understand the deal value for leverage in the negotiation.
2. Ask for a Longer Term
You need to evaluate your current and future business needs for the property to know how long you can commit to a commercial lease. If you’re willing to extend the lease term for longer than initially discussed, your landlord may be willing to provide a lower rate with the increase in term length.
Finding new tenants is a time-consuming and costly process that is a hassle to landlords. If you can commit to a longer-term, the landlord can put off finding new tenants which is very valuable to them.
If you’re not sure about the future of your business, ask to have a sublease term added which gives you the flexibility to lease a portion of your space if needed.
3. Check the “Load Factor”
Your rental rate will be calculated on the amount of square footage that you’ll be occupying and on a portion of the square footage that you share with other tenants.
Your landlord will use what’s called a “Load Factor” to determine the amount of rentable square footage. Ask your landlord how the Load Factor is determined to ensure that there is a fair method used to come up with the number.
You should always double-check the math to verify that the rate is correct.
4. Protect Yourself from Rate Increases & Unexpected Costs
Having a low rental rate for the first year can be offset if you face a steep increase in costs each subsequent year. To avoid nasty surprises, have language added to your lease that places a cap on the amount that your landlord can raise the rent annually. You also want to include language clarifying who is responsible for mandated improvements for safety and ADA standard compliance.
Pro tip: Always include who will be expected to pay for any catastrophic damage. This can help you avoid unexpected large costs in the future.
5. Speak to an Attorney
With our knowledge of the market and experience in contract negotiation the real estate attorneys at Shein Phanse Adkins will give you an edge when you’re negotiating a commercial lease and a lower rental rate.
Give us a call at (480) 922.3933 to schedule a consultation on negotiating a commercial real estate lease.