Negotiating commercial leases: Make all offers conditional
Wednesday, March 07, 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:
Operating cost or common area maintenance (CAM) queries
Operating costs or common area maintenance (CAM) often make up a large portion of the gross rent that a commercial tenant pays the landlord. Before you lease commercial space, ask the landlord and existing tenants if operating costs have increased much over the past year.
Base/minimum rent is fixed, but operating costs are adjusted annually and — typically — rise more often than fall. Commercial tenants may see an increase in operating costs as landlords managing their own property may tend to overspend to maintain or increase property value.
Make all offers conditional
When negotiating a new lease, make your offer conditional upon certain things (such as financing, partner approval, satisfaction with the formal lease agreement, zoning, construction estimate costs, etc.). This will let you legally and ethically rescind your offer to lease if any outside circumstances hold you back or prevent you from proceeding.
If you need more time to decide, simply request an extension (in writing) so that you can potentially remove your conditions at a later date.
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