Negotiating the Deal
The most important thing to remember when signing a lease for commercial property is that the lease was written with your soon-to-be landlord in mind -- not you. Read it well and have your attorney and insurance broker read it as well. They can help you spot things that are not in your best interest. Remember that much of the success of your negotiating will depend on the current real estate market. Here are a few things to consider before signing:
- The longer the lease the more likely your landlord will be to negotiate on other items. (Just make sure you know the length that is best for your business and your realistic expectations.)
- Always ask for an option to sublet, so if your business does go belly up you have a way to get out of your lease payment.
- Always ask for a rent cap so your lease payment won't escalate too quickly.
- Always make sure you agree to everything that is included in the rent. Sometimes you come out better if those items (utilities, repairs, etc.) are separate.
Work credit, cash allowances, or free rent can be used in the negotiating process too. If there are significant improvements that need to be made to the property before you can use it then these are all issues you should discuss as part of the negotiation process. The current market will probably play a part in which side of the fence you're on. If it's a tight market with low vacancy rates and high rents, you'll probably have a tougher time getting the landlord to pay very much for improvements. If there are a lot of empty buildings and the property needs a lot of work, the landlord may offer these allowances as incentives for you to sign the lease.
Cash allowances can be negotiated for things as simple as paint and carpeting. The points you need to cover when negotiating about improvements include who will be doing the work, who is responsible for damage, and what percentage of the total cost the landlord is willing to pay.
The landlord of the property may also offer additional incentives if the market is currently shaky, but always read the fine print and make sure you're protected. Read and review everything with the landlord to ensure total understanding and agreement of the terms, and bring in a real estate attorney to work out the details if there is any questionable issue.