How to Negotiate a Commercial Lease Effectively
Rent is one of the largest business expenses your clients face. One of the biggest mistakes real estate agents tend to make is doing a poor job of negotiating the commercial lease agreement on behalf of their client, resulting in major hidden costs and repercussions for their client’s profitability, and the risk of your client thinking you did an inadequate job negotiating their deal.
It’s important to remember that leases are typically open for negotiation. Before heading into negotiations, in addition to reviewing the contract, always lean on the expertise of your key team members such as your tenant representative, attorney and accountant to review the document as well. Together all areas of the contract that need to be modified in order to meet your client’s stipulations will be identified.
Moreover, knowing what is negotiable in lease agreements will give you the upper hand, helping you protect your client’s needs, and your future business. The following are some of the most common negotiation points in a commercial lease:
Rent Rates
Rental rates can often be reduced by extending the length of your lease. Before recommending to your client that it’s a fair deal, research the property and check market rents. Present your research to your client to prove due diligence.
Tenant Improvement Allowances
Ask the landlord for inducements such as improvement or renovations to the commercial space. Landlords are typically willing to make investments that will increase the value of their property; especially if the space has been vacant for a while.
Rent Increase Maximums
All future cost increases should be clearly specified. If a cap on the amount your rent can increase at renewal is absent from the agreement, make sure to ask for one. It’s smart to also ask for a lower rent increase cap to avoid higher than the average rate increases in your area.
Multiplying Factor
Make sure to understand your costs. Ask the landlord to explain how the multiplying factor is calculated. This will determine how your rent is going to be charged for the shared square footage in the building, and it can often be negotiated.
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