Negotiating commercial leases: Asking for free rent
Thursday, November 16, 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 tenants:
Lease renewal allowances
Commercial tenants often don't think they can negotiate for a tenant allowance on their renewal term. Untrue! Approximately 75 percent of our clients get a tenant allowance on their renewals. Remember, if the landlord is giving allowances to new tenants moving in, then why can't you have an allowance, too?
Even if your commercial space needs cosmetic upgrades (e.g., new carpeting or a fresh coat of paint), negotiate it as part of your renewal deal. After all, your tenancy is proven and there is less risk for the landlord putting cash into your renewal than taking a chance on a new tenant.
Maximize the tenant allowance
Yes, it is possible to receive all or even more tenant allowance money than you require to build out your space. This boils down to your net effective rental rate.
Some tenants can afford to pay a higher rent but want to minimize startup costs. The more convincingly you can demonstrate why you need the money (for fixtures, stock, etc.), the more chance you have of receiving it. Some landlords require no explanation.
Ask for more than you need since the landlord will likely counteroffer.
Asking for free rent
The most free rent we have ever negotiated for a tenant was the first four years free on a 10-year lease term.
In some cases, the landlord is in such a strong position that free rent is hard to get. The longer the commercial space has been vacant, the stronger your negotiating position will be. If the realtor/agent won't adjust the free rent on the offer to lease, do it yourself (in pen) as a counteroffer.
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