8 lease warnings for commercial tenants
Thursday, December 08, 2016
1. It's a business, not a marriage.
Opening a business and leasing space from a landlord may feel like a marriage, but it's not. Commercial tenants need to get that notion out of their heads.
With commercial leasing, a commercial landlord will have many different partners — even several hundred or thousands of tenants — and many different motivations for the relationship. The tenant, on the other hand, has only one landlord and one motivation for leasing space — as a means to an end to do business.
Landlords, for the most part, own property as an investment and make business and leasing decisions with their head and their calculator. Commercial tenants are well-advised to do the same, keeping their emotions out of the deal-making process. A commercial tenant is not in business with the landlord; a commercial tenant is doing business with the landlord.
2. Not all real estate agents know what they're doing.
The commercial real estate agency has its winners and losers, its rookies and its seasoned professionals. If the lease-making process isn't going the way you think it should, the problem may not be with you. The problem may well lie with the real estate agent who may not be experienced, capable or knowledgeable.
Tenants should check into the background of any real estate agent they're working with in a lease negotiation by inquiring on their experience and background or requesting references.
3. Check for problematic tenants.
Take a good hard look at the tenants already in a property before you commit to a five- or 10-year lease (or lease renewal). Are any of these tenants questionable? A problematic tenant can be noisy, smelly or even intrusive to your tenancy.
One of our clients, the owner of a bookstore, eventually relocated from a property at the end of his lease term due to the neighboring nightclub. Every morning, the bookstore tenant had to clean up outside before opening.
4. Shabby property maintenance.
When you tour a property for lease and see graffiti or broken signage, dirty sidewalks or potholed-filled parking lots, there's a good chance it will stay that way though-out your tenancy — despite what your friendly leasing agent might tell you.
Also, inspect the lobby of the building. Is the floor clean? Do the walls show wear and tear? Are the furnishings in the lobby dated or unattractive? Warning signs are everywhere — you just have to know what to look for.
5. Early disagreements can be signs of disrespect.
At times, landlords and their management teams are cooperative and professional, but other times they become defensive over little things. Such inconsistent behavior is a warning flag. If the landlords or their agents won't go out of their way to show the prospective tenant the advertised space when it's convenient for the tenant, that's also a warning sign.
Pay attention to patterns that develop early on. If you're being not being treated well during the courtship, we doubt you'll be treated any better once you've signed a lease agreement (or lease renewal).
6. The location you like is unrealistic or inappropriate.
We remember one couple explaining their business concept to us; it sounded reasonable until they told us about their location choice. This couple was planning to sell office attire but were looking to locate in a medium-sized bedroom community in a newly-developed retail area designated primarily for big box stores.
When we asked why they didn't want to open their business downtown, closer to their target customers, they explained that a downtown location was out of their comfort zone. The couple lived in a bedroom community, and the commercial property was close to their home — but it wasn't close to potential customers.
This scenario applies to selecting the best location for a business. Choosing a location that's a 45-minute drive from your home may be far more profitable than the plaza just down the street from your house in an area saturated with other entrepreneurs.
7. Not all landlords are litigious.
Many tenants who could — and should — close their doors or negotiate a lower rental rate don't do so out of fear the landlord may sue them. Many landlords are not, however, litigious. Some landlords may even accept responsibility for a tenant's poor business if it's due to high property vacancy rates, relocation of anchor tenants or even a downturn in the economy.
Tenants may need to consider approaching the landlord to discuss an early termination of their lease or exploring other exit strategies with the proper professional guidance.
8. It's all negotiable if you know what you're doing.
If there's one statement we hear frequently from tenants, it's this: "The landlord is not willing to negotiate."
The tenant may conclude this by trial and error — after using his or her poor negotiating skills or using the wrong professional to help. Perhaps the tenant is simply repeating what the landlord's agent has said to him and isn’t confident enough to negotiate.
Landlords and their agents negotiate commercial leases routinely. It's what they do for a living, while you may negotiate only one or two leases in your life. When you know what to ask for and how to ask for it, it's all negotiable.
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