Negotiating for the best commercial lease
When it comes to leasing commercial real estate, make sure you 've covered your bases before you sign on the dotted line.
On its surface, it may seem like a relatively straightforward transaction, but there is no such thing as a standard lease. In theory, every provision of your lease is negotiable. The important thing to consider is what you want and what you can afford. The end result may be a more favorable lease that saves your company money.
Scrutinize the lease carefully. It is a legally binding contract, not something you can break at will or change to suit your future business needs. There are numerous provisions in every lease that may have unintended consequences on the tenant.
One aspect of the lease to focus on is the lease term. Shorter lease terms benefit a tenant by creating flexibility to meet your changing business needs. Longer lease terms benefit the landlord by creating fixed income streams. Of course, longer lease terms also create a predictable office expense for your business, rather than putting your business at risk of rising rent costs in a hot real estate market. The longer lease term you are willing to agree to, the more likely that your landlord will make more concessions in other areas of your lease.
Negotiating the right to assign or sublet your space allows you an exit strategy without necessarily breaking your lease agreement. Also, if the space is larger than your business needs, you can sublease some of the space until your business is ready to use it.
Even if the rental price has been set, the landlord may be willing to provide an allowance for tenant improvements to the space to meet your business needs. It is not uncommon to move walls to meet individual office requirements. Often, the only question is whether that is an expense of the landlord or tenant. Tenants want to make sure their landlord won 't unreasonably prohibit or delay them from making alterations to the property. Also, watch for clauses that require the lease premises to be returned in their original condition.
Companies that sign long-term lease agreements are optimistic about the future of their business. As such, business owners should plan for their success accordingly. A landlord may be willing to grant an option to renew your lease, often at a fair market price or even better at a pre-determined, fixed price. If you are leasing space within a building, a right of first offer requires your landlord to present newly available space in your building to you before presenting it to third parties. A right of first refusal allows you to match any third party deal to lease space in the building.
Even rent is negotiable, within certain limits. Longer lease terms often have rent escalations, which some landlords are willing to cap. A reduced rent for a few months may help offset your moving costs. A gross lease includes utilities, repairs, taxes and insurance in you rent payment, while a net lease requires you pay these costs separately. Some landlords accept higher rent payments in lieu of a net lease.
Jason Barickman is a lawyer with Bartell & Barickman, LLP, in Champaign. His practice focuses almost entirely on business and real estate law. He can be reached at 217- 352-5900 or firstname.lastname@example.org.