When you are seeking a commercial property for lease, you will be given a printed lease prepared by the landlord or the landlord’s attorney. Determining the best terms to negotiate on a commercial property for lease depends on your particular situation and the type of business you intend to operate.
Two things to keep in mind as you read the lease are:
- The terms will favor the landlord
- You can negotiate crucial improvements to the terms
Generally, all terms are negotiable; however, your negotiating power many depend upon the strength of the local rental market. If it is cold, you will be more successful in securing better terms.
Length of Lease
One critical term you should focus on is the length of the lease. Short-term leases benefit the lessee and offer more flexibility. If your business grows or changes, you can seek out a different space without breaking the contract. In contrast, a long-term lease will ensure that you have an affordable rental payment for a predictable amount of time.
One option is to negotiate a short initial contract with options to renew, such as a one-year lease with an option to renew for two to three years more. If you ask for this, the landlord may want a higher rental payment for the renewal period.
Rent and Rent Increases
Another key issue to consider when looking at commercial property for lease is the rental payment. Always shop around and have two to three appropriate properties that would work for your business. If the local market is particularly cold, you will have greater negotiating power in asking for lower rent. In addition, the contract will likely contain annual rent increases. Try to exclude an increase after the first year, and get a cap on each year’s increase.
In addition, commercial leases come in several varieties. A gross lease will have the landlord paying repairs, utilities, taxes and insurance. With a net lease, the tenant pays for them, which can add up. You can offer to pay higher rent in exchange for deleting those extra expenses.
Other issues to consider are tenant improvements, subleases and assignments. If you are in the market for a commercial property for lease, let Menlo CRE represent you during the search and negotiating process. We bring years of experience to the table for your benefit.
Contact us today at 480.659.1777.