Negotiating commercial leases: Trade free rent for cash
Thursday, October 19, 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:
Negotiating for Cash and/or Loans
Some landlords will actually pay cash incentives to tenants who lease space in their building. Other tenants can often get quasi-landlord loans. This money is normally blended into the rent so it’s not necessarily free (the landlord will expect a certain net effective return).
However, if you are just starting up a new business, this may make things easier for you. If you wish to receive a cash incentive or a landlord loan, demonstrate why you’ll need the money and what you will spend it on (such as paint, carpet, etc.).
Trade Free Rent for Cash
If you have successfully negotiated for a free rent period, it is sometimes possible to convert that value into cash and then use that money for additional leasehold improvements or stock purchases.
If you have negotiated for four months of free rent, with each month valued at $3,000, you could now approach the landlord and request up to $12,000 cash. Remember to justify your expenditures and be prepared to discount your requested value to get the money (if needed).
Process vs. Event
Far too many commercial tenants view the leasing process as an event — or having one big meeting with the landlord. The more you approach leasing as a process, done step by step over time, the better your lease deal will often turn out. Stepping back and/or stepping away from the bargaining table gives you time to regroup and re-approach various clauses that you want to negotiate.
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