Save yourself from hidden expenses by knowing how to negotiate a commercial lease.
Negotiating a commercial lease successfully can save you money down the road. — Getty Images/vm

It’s common for commercial leases to favor the landlord, and many business owners don’t realize they can negotiate. Here are seven ways you can negotiate your commercial lease and put your business in a better position.

[Read More: How to Negotiate a Business Office Lease]

Understand the type of lease you’re agreeing to

The first step to negotiating is to understand what kind of lease you’re agreeing to. There are three different kinds of commercial real estate leases:

  • Gross lease: In a gross lease, you’ll pay the landlord one monthly fee, which will cover the rent and all operating expenses. This includes things like utilities, insurance, maintenance and property management. Many people prefer a gross lease because the costs are fixed.
  • Net lease: A net lease comes with a lower monthly rent, but you’ll also pay a certain percentage of operating expenses. For instance, if you have a double net lease, you’ll pay rent, property taxes and insurance.
  • Modified gross/modified net lease: You can also negotiate either a modified gross or a modified net lease. This type of lease provides more of a compromise for both the landlord and the tenant.

Understand the total costs involved

If you’re expected to pay for operating expenses, you’ll want to understand all the costs involved and make sure they fit within your budget. If you have a net lease, what specific maintenance costs are you responsible for? You’ll also want any future rent increases clearly outlined in the lease agreement.

Research the property you’re considering renting

Before agreeing to any lease terms, research the property you’re considering renting. Are there other tenants in the building that have access to common areas? Will you have adequate access to things like parking?

It’s also a good idea to talk to neighboring businesses and find out about any issues that could affect your business. And if you can, talk to previous tenants and find out what kind of experience they had with that landlord.

Before agreeing to any lease terms, research the property you’re considering renting.

Check the length of the lease

The length of the lease is going to have a considerable impact on your business. A short-term lease will provide you with more flexibility, and give you the option to shift gears if your business needs change.

In comparison, a long-term lease provides less flexibility, but the rent will be more affordable. And landlords tend to be more willing to make concessions for long-term leases.

The length of the lease really depends on the type of business you run. If you run a business that isn’t location-specific, like an office space or warehouse, then it might make sense to negotiate a longer lease with a lower monthly payment.

On the other hand, if you run a bakery or a retail store that is more location-specific, then it might make more sense to negotiate a short-term lease. You can ask the landlord to include an option to renew after the lease is up.

Find out what the termination clause is

The termination clause outlines the terms under which either party can cancel the lease. For instance, can your landlord terminate your lease for missing one rent payment or do you get a bit more leeway?

What is the penalty for breaking the terms of the lease? Some leases will require you to pay the entire amount owed on the lease if you choose to break it. If this is the case, you should negotiate for better terms.

Ask for favorable clauses

You can ask the landlord to include clauses that will benefit your business. For instance, you can request a competitor clause that states that the landlord must receive your consent before renting space to one of your competitors.

A co-tenancy clause will lower your monthly rent if a large number of tenants suddenly leave. And if you agree to a long-term lease, you can request a clause to sublease the space if your business runs into financial problems.

Have a lawyer review the lease

Even if you feel like you have a good understanding of the lease agreement, you should always involve a lawyer. If possible, use a commercial lawyer who knows the ins and outs of leases. That person can help you uncover any hidden costs and avoid committing to a lease that could end up hurting your business.

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Published September 08, 2020