Negotiating commercial leases: Cap your operating costs
Thursday, April 26, 2018
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 two money-saving tips for tenants:
Cap your operating costs
Commercial tenants are understandably frustrated when a property's operating costs rise. However, it is possible to negotiate a cap on operating costs.
In the offer to lease, simply state (in pen) that operating/occupancy/common area maintenance (CAM) costs are capped at a maximum (say 5 or 10 percent per year). Even this is high in some respects, but commercial tenants frequently get sideswiped with unexpected CAM cost increases. Don't be caught unaware.
Befriend the landlord and manager
We cannot stress enough the importance of developing a relationship with the property owners and administrators. If you ever need a favor, you will find that is much easier to make a withdrawal from the relationship if you have made some deposits along the way.
Since most entrepreneurs only have one landlord but the average landlord has hundreds of tenants, take the initiative and cultivate a relationship.
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