Negotiating commercial leases: Ask the right questions
Wednesday, May 17, 2017
For many commercial tenants, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While an entrepreneur focuses on marketing and managing, savvy real estate agents and brokers are specialized salespeople. Their job is to sell tenants on leasing their location at the highest possible rental rate.
Tenants may go through the leasing process only two or three times in their entire lifetime — yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. Negotiating appropriate leasing terms is vital for a business owner as the amount of rent he pays will directly affect the company's financial bottom line.
Whether you are leasing a new location for the first time or negotiating a lease renewal for your business, here are three money-saving tips for commercial tenants:
1. Be pleasantly assertive ... not passive
If you don't take control of the situation, the leasing agent will. If you see a property you like and would like to learn more about, call and ask the agent to email you the site plan and related details. Don't just drop everything you're doing and run over to the site.
For the first meeting, have the agent come to your place of business. If you like what you hear, you can meet at the site that is available for lease a few days later.
Try to set viewing times convenient for you. Remember that you are the customer.
2. Determining your bargaining strength
Numerous factors will determine your bargaining strength with regard to negotiating a new lease or a lease renewal.
These include the overall vacancy rate of the building, the recent tenant turnover, your unit's size in relation to the entire property, the percentage of the building you occupy as a tenant, your own business history, your status (as either an independent or a franchise tenant), as well as your industry (consider that hair salons are plentiful while pet stores are not — therefore, a pet store should command more favorable lease terms).
3. Ask the right questions
Who really owns the property … a local family or a distant pension fund? Who were the last two tenants to move in — and out? Which tenants (including property anchors) are not renewing their leases? Is the property currently for sale or expected to go on the market soon?
Asking questions such as these will help level the negotiating field as most leasing agents volunteer only one-sided information.
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