Negotiating commercial leases: Who makes the first offer?
Wednesday, July 12, 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 commercial tenants:
Hiring a lawyer or an accountant
Few lawyers or accountants possess savvy or practical experience in commercial real estate. Therefore, check their websites or ask them directly if they specialize in commercial real estate. Another good approach is asking other business owners in your professional circle for referrals.
The legality of the lease document is not often in question — to that end, is often more important to review the lease document for negotiable points rather than legal points.
Who makes the first offer?
Whether you are looking at a new lease or a lease renewal, it is best if the landlord makes the first proposal.
Don't be surprised if your verbal request (especially for a lease renewal proposal) falls on deaf ears. Write a brief letter to the leasing representative or the property manager requesting a written proposal within 10 days.
If you make the first renewal offer, this implies that you will be staying — thereby undermining your negotiating strength.
Never just accept the first offer
Even if an offer seems reasonable or you have no idea what to negotiate for, never accept the leasing agent's first offer. More often than not, this first offer or rental rate is inflated. Many agents use a strategy of starting negotiations at a higher rate that allows them to give in slightly.
We frequently completes lease agreements at 15-25 percent less than the agent's opening offer. In one case, the rental rate came down from an asking rental rate of $8 per square foot to under $3 per square foot following our negotiating for our client.
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