Negotiating commercial leases: Select the best lease length
Wednesday, December 13, 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 tenants:
Select the best lease length
While a five-year lease term is still standard (seven or 10 years in some cases), it may not necessarily be the best term for you or your company. Three years — or even one year — may be better for some tenants if the cost of leasehold improvements is low enough as these are generally amortized over the life of a lease term.
The agent, motivated by a greater commission, will want you to sign the longest lease term possible, but the landlord may be more flexible. Take the term that is best for your business and don't be persuaded otherwise.
Negotiate renewal option(s)
Don't forget to negotiate your renewal option(s) in advance and specify that it/they be assignable. Some leases state that renewal options cannot be assigned or transferred, thereby potentially making it more difficult to eventually sell your business.
Stating that the renewal option be up for up to five years, for example, will give you more flexibility if you only want to renew for only two more years. Renewal option wording can be tricky — read this carefully.
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