Negotiating commercial leases: Determine your bargaining strength
Thursday, July 27, 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 two money-saving tips for commercial tenants:
Determine your bargaining strength
Several factors will determine your bargaining strength with respect to your negotiating a new lease or a lease renewal.
Consider the overall vacancy rate of the building (how many empty units does the landlord currently have and will he want another empty unit if you do not agree to terms?), recent tenant turnover (who has left the property, when, and why?) and your unit's size in relation to the entire property (larger units will cost more to lease and will drive up your common area maintenance charges as well). In theory, chain stores and franchises should get a better deal than independent tenants (due to name recognition), but this is not always the case.
Your business history is also important (how long have you been open for business and/or leased commercial space?). And finally, your industry counts. Hair salons are plentiful while pet stores are not — therefore, a pet store should command more favorable lease terms.
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 are not renewing their leases? Who is leasing month-by-month? Is the property currently for sale or expected to go on the market soon?
Asking questions like these will help level the negotiating field, as most leasing agents volunteer only one-sided information.
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