Negotiating commercial leases: Is the asking rent too high?
Thursday, October 05, 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:
Is the asking rent too high?
Commercial rental rates are set by landlords to achieve a reasonable profit. Many tenants mistakenly believe that the landlord wouldn't charge more than the tenant could afford to pay.
As a tenant, you must be able to distinguish between affordable rental rates and inflated rental rates. Many commercial tenants learn the opposite the hard way.
Need vacancy protection?
If proper tenant mix and customer traffic flow are important to you, then you may need vacancy protection. Look around and ask yourself, "Would it adversely affect my business if any of these existing tenants (including anchor tenants) moved out of this building or the property was 30 percent (or more) vacant?"
Negotiate in advance for an automatic rent reduction — or even the right to terminate your lease — should the property's tenant mix or occupancy rate be compromised to your detriment.
Check your gross up
Commercial tenants located in office buildings occasionally get their space grossed up to compensate for the property's common areas. Keep in mind as well the rentable vs. usable factor (R/U) where columns or bay windows affect your area.
To clarify, the landlord could be charging you rent for 3,300 square feet when (in actuality) you only have 3,000 square feet. This is not a mismeasurement but an industry formula that tenants need to be aware of and understand. Confirm the area you are paying for is the amount of area that you are leasing.
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