Negotiating a Successful Commercial Lease

By February 3, 2016 October 25th, 2018 Business Blog, Corey Van Houten

Many business owners have started 2016 off by negotiating new space for their business. This is exciting, but can also be quite stressful – especially if you are considering leasing space under a long term lease agreement. Here are three considerations to help make sure your new space provides your business an opportunity for a successful future:

1)    Involve an attorney early in the negotiation process.

Clients frequently consult their attorney too late in the negotiation process. When issues arise in the latter stages of the negotiation most landlords are resistant to making changes that weaken their position because it seems as if the tenant is attempting to renegotiate the agreement; often that is when attorneys first get the call that they are needed. At that point it is too late and your attorney is quite often limited to just reviewing language in the lease, as opposed to addressing the major deal points. By consulting your attorney throughout the entire process, the important issues are in focus early and you have a better chance of working with the landlord, rather than against them.

2)    Consider whether the lease allows for growth or contraction.

A well negotiated lease allows for changes to your business. Does your lease allow for increases in office space, storage, or parking? Does your lease allow an option term for continued occupancy? Does your lease allow you to sublease or assign unneeded space? Does your lease allow for improvements, alterations, or build-outs? Unfortunately, correctly predicting the direction a business takes is challenging – occupying space inconsistent with your current business model limits potential revenue and increases financial liability. Carefully considering how your business might change in the coming months and years is crucial to negotiating a successful lease for your business.

3)    Understand who is responsible for all expenses.

Monthly rent is a guarantee, but other expenses could add up to create additional and unbudgeted overhead. Typically, common area maintenance costs are paid separate and in addition to monthly rent. Property taxes are too. What are these costs in your lease? Can they increase month-to-month? Can they be capped? Who is responsible for maintenance and repair costs? Who pays for HVAC repairs, plumbing issues, or malfunctioning electrical systems? All of these costs could be the tenant’s responsibility by the terms of a “standard” lease. Understanding and negotiating the monetary obligations specific to your lease helps avoid costly surprises that could arise later.

These considerations are just some of the many ways to help your business when renting commercial space. Nonetheless, these three are applicable to nearly every commercial lease and could be the difference between a profitable business and one that goes under.