The negotiation of a commercial property lease is a carefully crafted dance where both parties attempt to come out with the best deal. While a landlord/owner is the first to offer their terms, those terms are absolutely open for improvement. As a tenant you should be prepared to fight for what you want, stay firm and always get out on that negotiation dance floor.
Tenants should be aware that any legally binding agreement like a lease should be prepared negotiated and reviewed using a professional commercial real estate Broker. Even if a tenant does hire help with a lease, they should always be aware of their rights. Below we list out the four parts of a commercial property lease that a tenant should always negotiate.
4 Parts of a Commercial Property Lease to Always Negotiate
This is the first and last thing that affects a tenant’s bottom line, so naturally it should be the first and last part of a commercial property lease that they negotiate. The rental rate that is noted on a listing should always be viewed as a jumping off point for negotiations, not set in stone.
There are several factors that affect whether a landlord/owner is willing to lower their price including the current market vacancy rate, the physical health of the asset and their current financial situation. While there will be factors beyond a tenant’s control, here’s our best tips for negotiation:
Vacancy: Has the commercial property been on the market long? If so that means you have a lot more wiggle room to negotiate. Every month the asset sits vacant a landlord/owner receives no income, after several months this adds up and an owner will want to fill the space under any means necessary, including lowering the price.
Start Date: In addition to lowering the rent, or even in its absence, you can still negotiate when you start paying rent, and it doesn’t have to be when you occupy the space. In our experience landlord/owners will waive or defer rent during build-out periods or until a tenant actually opens their business to the public.
Depending on the type of commercial property and type of business the tenant intends to run, an exclusivity clause is going to be important or really, extremely, make-it-or-break-it important. What it says is that a landlord/owner cannot lease space at the same property to a tenant’s direct competitor. So if you run a pizza place? No other pizza places can be on your property. Have a sports memorabilia store? You guessed it. An exclusivity clause will prevent competition from opening a store at your site.
No one can predict the future. While no tenant would sign a 5-year commercial property lease knowing they will close their business in 2, they also can’t possibly know if and when disaster will strike. To mitigate risk tenants should always negotiate a subletting clause into their lease. This basically states that in the event a tenant can no longer afford or use the space, they can sublet it to someone else you can.
Like the subletting clause, a break clause mitigates tenant risk…but takes it up a notch. Instead of saying “in the event my business is not performing and I can’t use the space I can lease it to someone else” a break clause allows a tenant to completely leave, or break, a lease. Here a tenant can negotiate a one-time exit tied to specific terms, typically time period and revenue. Ex. If within X days I have not realized X% of sales I can cancel the lease.
Negotiate Like a Pro…By Using a Pro
First things first, a commercial real estate professional typically costs the landlord/owner not the tenant. So if a landlord is paying the commission, there is no reason why a tenant should not be using a CRE Broker to negotiate their commercial property lease.
A knowledgeable Broker will not only help you locate the best property, they will be there to guide you through the entire leasing process, from build out to occupancy. It’s always good to have an expert on your side so if you are seeking commercial property to lease in Charlotte, NC give the experts at SVN | Percival Partners a call. With over 50 years in the market we have negotiated hundreds of leases and always get our clients the best deal possible. Contact us today at 704.632.1000.