Negotiating commercial leases: Subletting your commercial space
Wednesday, October 17, 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 his own business, savvy real estate agents and brokers are specialized sales people. 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 commercial tenant as the amount of rent he or she pays will directly affect the entrepreneur’s financial bottom line.
Whether you are leasing a new for the first time or negotiating a lease renewal for your business, here are some tips:
Subletting your commercial space
Almost every commercial space has the potential for subletting. If you must move, close out, or downsize, subletting is a practical solution.
Don’t necessarily expect to get 100 percent of what you are paying for rent, but if a subtenant paid 75 percent of your current rent you may have a deal worth making.
Remember, you will need the landlord’s approval to sublet. If the store’s Use changes (e.g., from a flower shop to a drugstore), you may have to do some negotiating as it is common to require consent from the landlord on any change of Use.
Please read this carefully. Most lease agreements contain an Overholding Clause (or a Holding-Over Clause).
This is the portion of a lease agreement stating the base rental rate (and Common Area Maintenance/CAM/Occupancy Costs) adjustment at the end of the term. Should the tenant remain leasing on a month-to-month basis, base rent can increase by 150-200 percent.
For new leases, try to negotiate the amount down to 120 percent. Be especially aware of this at your lease renewal time to avoid getting penalized.
Ask your landlord to waive this increase during protracted renewal negotiations. Check this clause in your lease right now!
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