How to Get the Best Terms for a Commercial Lease

Tips for Getting the Best Terms on a Commercial Real Estate Lease

Negotiating a Commercial Lease
Negotiating a Commercial Lease. Thomas Barwick/Getty Images

Getting the best lease terms can be a make-or-break deal for a new or growing business. The wrong terms can lock you in to a bad location or a too-high price, or both. Before you start negotiations on that commercial real estate lease, review these tips to get a better deal:

1. Get your own agent.

Don't rely on the landlord's agent to negotiate the best deal for you. Having your own agent gives you someone with your best interests in mind.

Look for a good commercial real estate agent and develop a relationship. You never know when you might need that person again.

2. Be ready with your financial plan.

For more start-ups and businesses that have little or no commercial credit, you're going to need a backup plan to get the landlord to accept your terms. Providing a personal guarantee or a co-signer, and having a business income statement and personal financial statement can smooth the process and get your landlord to relax.

3. Know your essentials.

You must be able to talk the talk. While an agent can help, you should know the difference between COL (cost of living) and CAM (common area maintenance). Review this leasing terminology glossary before you begin negotiating. You may also hear such terms as "TI" or "leasehold improvements" or "build-out." Understanding the differences between terms can help you evaluate what the landlord or agent is telling you.

4. Get a good CAM section.

CAM (common area maintenance) is probably one of the most confusing sections of the lease and you will be surprised by how much you are paying for. Check to make sure you are not paying for things that relate to the landlord's marketing efforts or legal fees associated with negotiating other leases.

Other things you may want to strike are any administration fees of more than 3%, paying for benefits for the landlord's employees, build-out costs for other lease units.

5. Get only the space you need. 

Make sure you aren't paying for unusable space. You may want the option to expand, but you don't want to lock yourself into paying for more space than you need. If there's a space available next to yours, put in a "right of first refusal" clause in your lease, so you have the option to first dibs on that space if it becomes available.

6. Review the lease documents.

First, review this article about common commercial lease documents, so you know what's required. Then read all the documents. Yes, you do need to read it. I know, it's a very long (and face it, not very interesting) document, but you do need to know what it is in it. Check the terms. Do not assume they got it right. Make sure you check the start date, end date, rent, rent escalation and any other special terms you negotiated for.

Also, be sure you know what you are obligated to do. What is the landlord obligated to do? Can you terminate it? Make sure you know what you are getting into.

7. And be prepared to trade.

If you can take the lease for a longer term, you can get a better rate. Consider what you can give up to get other things you need.

Finally, remember that everything is negotiable.


Read more at : Finding and Leasing Space for Your Business

Continue Reading...