Women's Guide to Negotiating a Commercial Lease
Ask the Right Questions and Negotiate the Best Deals
It is particularly important for women business owners to ask the right questions about commercial leasing. Women may be unfairly taken advantage of for a variety of discrimination-based reasons if a landlord senses ignorance or impulsiveness on the part of the party interested in leasing space.
Once you have answers to the right questions, you can research more about types of leases, leasing terms, negotiating commercial leases. You will also be better able to plan your finances, and your negotiation strategies if you know what questions to ask.
The Three Most Important Questions to Ask Before Negotiating or Signing
There are many questions you can and should ask before leasing commercial property. However, no matter what else you ask, you need to include asking three very important questions. If you do not, you are almost certain to overpay for space for your business.
Three questions every woman should ask about commercial leasing include:
- What Type of Commercial Lease is Being Offered?
- Are the Terms of the Commercial Lease Negotiable?
- What Insurance Coverage Does the Lease Require?
Find out What Type of Commercial Lease is Being Offered
The type of lease being offered is probably the most important thing to consider first because it determines how you will be charged rent.
The terms of commercial real estate leases are defined by the type of commercial lease.
Some commercial leases are straight-forward, but most are not. If you do not know what a Triple Net Lease is, or what "Load Factor" means, or how your rent will be calculated (it is rare that you will be charged only for the actual square footage you will occupy), you cannot negotiate better terms.
Is the lease "full service" or "percentage based?" The key to negotiating terms of a lease may be contingent on first negotiating the type of lease.
Ask to see a copy of a sample lease. A landlord who refuses to let you have time to look over lease terms before signing is not one to be trusted. Commercial leases can be just a few pages but are more typically 15-20 or even more pages in length. If you want a lawyer to look over the lease and the landlord refuses, do not sign the lease!
The Types of Commercial Leases
There are many types of commercial leases and some overlap. Because certain types of leases may include services (like, janitorial, utilities, etc.) but other lease types do not, it is important that you specifically ask what kind of lease it is, as well as if it includes services, load fees, percentage fees, or other fees association with "net" leases.
Types of leases typically offered in commercial leasing include:
- Double Net Lease
- Fully Serviced Lease
- Gross Lease
- Net Lease
- Percentage Lease
- Percentage Rent
- Rentable Square Feet
- Triple Net Lease (also known as NNN or Net Net Net Lease)
Find out If the Terms of the Lease Are Negotiable
All commercial leases should always have at least some room for negotiation, no matter how small.
A completely inflexible landlord is generally not someone you want to lease from because "inflexible" often equates with "unreasonable." If a landlord is unreasonable during lease negotiations, s/he may also be unreasonable or unfair once you are in the space and need repairs or considerations for unforeseen things like more parking, access to equipment or telephone rooms, etc.
Negotiable terms include the length of the lease, free rent, smaller security deposits, and concessions for the tenant upgrading the space. Other areas typically negotiated in commercial leases include lower rent, caps on rent and "load" increases, reducing other fees, or eliminating them all together.
When there is absolutely no room for any negotiation you immediately know two things: your landlord is unreasonable and you can probably do better elsewhere.
Sometimes, the best way to change the terms of a lease are to first negotiate the type of commercial lease. For example, a Triple Net lease requires tenants to always pay all or part of the taxes, insurance, and maintenance associated with use of the property. These fees are paid in addition to the tenant's regular monthly rent. If you do not want to pay all these fees, you need to ask for a different type of lease.
Find out What Insurance Coverage the Lease Requires Tenants to Purchase
Few business owners new to commercial leasing will look beyond their actual monthly rent and utility costs when determining if a space is affordable, but you also need to consider your insurance costs.
Moving from a home-based business into "brick and mortar" space will cost you more to insure your business because, in addition to your own insurance needs, your landlord will probably require you to purchase insurance to protect him/her as well. As long as you occupy the space, you will have to have insurance coverage - it becomes a fixed expense along with your other rent expenses.
Find out How Much Insurance You Will Need
Be absolutely sure to ask what type and amount of insurance coverage is required by the lease. This may seem like an unnecessary question, but many small businesses are uninsured or underinsured.
GCL insurance offers the landlord protection from being sued under certain situations and this should be spelled out very clearly in your lease. While GCL offers you some protection, the landlord requires it to protect their own interest, not yours.
Some landlords require insurance coverage that may be expensive, or worse, coverage that you cannot get. While most businesses can get GCL insurance, if a landlord requires product liability insurance, some businesses may have trouble finding coverage, or coverage could add thousands of dollars to your insurance bill.
Find out If Insurance Is Required Prior to Moving In
You should also know in advance if the coverage must be in place before you can move in. Most landlords will require that you have a minimum (that they set) of general commercial liability (GCL) insurance prior to handing you keys to the space.