Negotiating commercial leases: Who should be the tenant?
Wednesday, January 31, 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, 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:
Who should be the tenant?
Don't enter into either an offer to lease or a lease agreement under your own personal name. This will make you personally liable for everything. Instead, form a corporation or a holding company that will become the tenant.
If you are negotiating on multiple locations, but don't intend to incorporate until a later date, then the offer to lease should state that the tenant is Your name on behalf of a company to be incorporated (or nominee). If you are opening up multiple locations, it is often wise to form a new company for each lease agreement as further protection.
Corporations also have tax benefits over sole proprietorships (your accountant can explain these for you).
Avoiding personal guaranties
Tenants often passively accept a guaranty because this was left to the end of negotiations for discussion. If you are strongly opposed to a guaranty, bring it right out in the open to begin with before you invest several weeks on the deal-making process.
Sometimes, a limited personal guaranty — equivalent to the tenant allowance — is acceptable. Providing that the guaranty declines over time may not be unreasonable (i.e. a $50,000 guaranty declining by $10,000 annually for five years).
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