Negotiating commercial leases: Turnkey construction advice
Thursday, November 02, 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:
Turnkey construction advice
If your landlord does your leasehold improvements, they are supposed to turnkey the space to you. It's up to you, however, to create a comprehensive wish list of the necessary improvements that you want done.
For example, stipulate in the offer to lease that the landlord does the space design, secures permits and finishes the job by a particular deadline. Extras (or add-ons) not mentioned will be the tenant's responsibility, so make sure that your offer to lease is conditional upon your satisfaction with the final budgeted cost.
Tenant allowance advice
Receiving a tenant allowance will assist you with doing leasehold improvements. You may be able to negotiate to receive a portion of this money up-front (for example, one-third upon your signing the offer), so you won't have to finance 100 percent of it. Stipulate exactly when the allowance is to be paid to avoid confusion.
Occasionally, a landlord can't or won't pay the money they agreed to pay. To protect yourself, you can try to include a clause that says if the landlord doesn't pay the allowance, then the tenant will receive 150 percent of the value of the allowance in free rent.
Either way, this provides your landlord with incentive to pay you or provide you with reasonable compensation.
Lease renewal allowances
Commercial tenants often don't think they can negotiate for a tenant allowance on their renewal term. Untrue! Approximately 75 percent of our clients get a tenant allowance on their renewals.
Remember, if the landlord is giving allowances to new tenants moving in to the property, then why can't you get an allowance, too? After all, your tenancy is proven, and there is less risk for the landlord putting cash into your renewal than taking a chance on a new tenant.
Even if your commercial space only needs cosmetic upgrades, negotiate for these as part of your renewal deal.
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