Negotiation Commercial Lease Terms

Nearly all businesses must go through many of the same things to get started. The decisions that the business owner makes at the beginning can often make or break the success of the company. One task that must be done before any business can be done is leasing a space. While this may seem elementary, it is in fact an important part of the process. If you just take the terms that are offered in the initial contract offering, you probably won't get the best offer available. Familiarizing yourself with a few key terms and the process will help you negotiate the best commercial lease for you.

In a vast majority of written leases, there is one thing to remember: they always favor the landlord. Now what does this mean to you? It means that you'll need to negotiate the terms to a more acceptable balance for both parties. While it makes sense to the landlord to present the deal that will help him the most, it doesn't really help you. Uninformed tenants may just sign whatever lease is presented to them. However, if you want to save money, you'll need to go over the terms with a fine-toothed comb.

While it may seem like an intimidating task to get the terms more suitable, with many landlords it can be quite easy. Sometimes, the lease is just a standard form that they got from somewhere. They're probably not married to the terms and they can be altered. Most of the time, the only thing you need to do is ask. Just remember the old adage, "Be careful what you ask for." Don't take on more responsibility than you can handle. Many landlords are just happy to get a reliable tenant. Therefore, you can probably get most of the terms you desire if you'll just get the courage to ask.

One critical element of the lease is the amount of time that the lease is for. You, as a business owner, must decide which type of lease is best for you: long or short-term. Both types of leases present benefits to certain types of businesses. Short-term leases may be desirable if your business changes frequently and needs to be flexible. If you don't want a lease to tie you down for years to come, this is your best bet.

On the other hand, a long-term lease may be what you need. If your business success strongly depends on location, this may be for you. A long-term lease will make your payments more affordable. It will also lock you into a desirable location for a longer period of time. This makes it easier to predict your success over a longer period. An example of a business that might benefit from this type of lease is a retail store or restaurant.

Another important aspect of the lease is whether it will be a gross lease or a net lease. The reason why this is important is because it is a large expense that will either be paid by you or the landlord. In a gross lease, the landlord will pay the utilities and expenses associated with the property. The rent will obviously be higher and you will just make one large payment to the landlord every month. You don't have to worry about anything else, but it might be more expensive.

With a net lease, you pay some or all of the utilities and repair costs associated with the property. With a triple net lease, for example, you pay all utilities, repairs, and taxes and the landlord just gets a check every month. This is by far the easiest lease for the landlord, but it greatly reduces their rent check every month. You must decide which type of lease is best for you and your business.

Another critical element of negotiating the lease is the rent increases. This is an essential part of the lease, as inflation makes the landlords rent requirement go up. This is a bigger part of a long-term lease than it is in a short-term agreement. While the rent may not have to go up every single year, it will undoubtedly need to go up in most cases. The important part is to make sure that the terms are fair for you, as well as the landlord. Don't agree to anything that you think is unreasonable. Doubling your rent after the first year is probably a little too much to ask for.

Deciding who will pay for tenant improvements is another important aspect of the contract that must be agreed on. Also known as "build outs" these can be quite costly if you're not expecting them. You don't want to be two years into your lease and get stuck with a huge bill to add on if you weren't planning on it. Discuss with the landlord what improvements might need to be made in the future. Make it known in writing who will be paying for them.

If you think that there is a chance that you could end up moving before the life of the lease is expired, you'll want to include a subleasing option. This allows you to find your own tenant to pay the rent for you if you must leave. This really allows flexibility with your plans. If you have an unexpected need for more space, you don't necessarily have to break your lease in order to move. This can save you a lot of money in fees that are payable to the landlord if the lease is broken.

While many of these terms are usually negotiable, the degree of negotiability depends greatly on the market. If there is a lot of rental space available, this will benefit you in your negotiations. The landlord must be a lot more flexible in this instance. In any case, make sure that the terms you agree to are suitable. Don't agree to anything just to get the deal done. Three years from now you might regret it.

Anthony Seruga and Yolly Bishop of Maverick Real Estate Investments, Inc. work with builders, developers and other players in the commercial real estate industry to acquire and develop properties. They use progressive investment strategies that have proved extremely profitable. In addition to their own deals, they teach both seasoned and inexperienced investors how to be big players in the game. Visit the website for more info.