Negotiating commercial leases: Go slow for a better deal
Wednesday, November 29, 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:
Free rent and/or operating costs
When negotiating for free rent, it is generally best to negotiate on a total value basis. Most landlords who could provide two months of gross free rent at $8,000 in value might be more willing to give you six months of base/minimum rent free valued at $10,000.
The tenant paying operating costs from the beginning or the commencement date will lessen expenses for the landlord who would be currently paying the operating costs.
Spreading free rent over time
In order to achieve the maximum free rent period, you can negotiate to spread the free rent over time. If you want the first six months free but the landlord will only give you the first three months free, accept the offer but insist on receiving months 13, 25 and 37 free as well. This lessens the landlord's risk, but you still receive the full financial benefit.
Be creative! Even the last three months free is better than no free rent at all.
Go slow for a better deal
Entrepreneurs often rush a lease deal and leave valuable inducements or incentives on the table. If you have the time to work with, take it. We often successfully negotiate for more free rent, more tenant allowance and even a lower rental rate by refusing to sign on the dotted line too quickly.
If the landlord or realtor/agent is anxious to close the deal, you can use stalling tactics to better your position (e.g., tell them your business partner is currently out of town and you have to wait to speak to him/her). Entrepreneurs who invariably have regrets will usually tell you the whole process happened so quickly that they hardly realized what they had agreed to.
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