Negotiating a commercial lease may be a very daunting task for corporate tenants. Rents can be the biggest business expenses that a tenant can make, and these five leasing tips are essential for all tenants to know.
1. Research the Property
Before you lease a building, it is essential that you gather information about the property that might be useful for your lease negotiations.
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Check the building’s tenant mix as well as the neighboring businesses to check for competitors and how the various businesses going on in the area are compatible with your business.
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Check the building’s traffic. If the parking spaces are shared with other tenants in the building, you have to check if the allotted space is enough for your needs. In case other tenants take up more space than you would, you may want to negotiate the common area payments.
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Discuss with other local businesses in the area to discover any issues that could affect your company. For example, you may want to check if there are zonal laws that could affect your nature of business.
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Ask your tenant rep and existing tenants about the landlord’s reputation to see whether there are any warning signs. You can ask realtors or existing tenants. For instance, if the other tenants are attempting to leave the building, it means the landlord may be difficult to work with.
2. Review Termination Conditions
Another important commercial leasing tip to know is the termination condition. Review the circumstances under which the lease may be terminated. When reviewing the termination conditions, you may want to ask the following questions:
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What happens if the building is sold?
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What happens when the tenant misses a rent payment?
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How can you break the lease if there is an expansion in business?
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Can you sublease the space?
These questions are starting points when reviewing the termination conditions of your lease agreement.
3. Know Your Lease Options
Each lease option is quite different.
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In a gross rent lease, the tenant is required to make a single payment to the landlord which covers base rent and all incidentals, which include utilities, property tax, insurance, maintenance, repairs, and common area expenses. In the modified gross lease, the tenant and the landlord share the incidental costs.
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In a net lease, the tenant pays for the base rent plus one of the incidentals: property taxes (most common), insurance, or utilities. The landlord pays for all other expenses.
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In a double net lease, the tenant pays base rent plus property taxes and insurance.
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In a triple net lease, the tenant pays a base rent, plus property taxes, building insurance and utilities, as well as maintenance costs.
4. Start as Early as Possible
Many tenants wait too long before looking for commercial office space, and this makes it difficult to negotiate a good lease agreement. This is because the landlord can easily sense the urgency in the need for space and may want to use that as leverage.
5. Have a Pro on Your Team
A tenant rep has enormous information about commercial real estate, and they can help you find the right space that meets your business needs. Working with a tenant rep helps you to access as many potential offices, which will be a leverage point when negotiating your lease.
Here are a few other articles we think you'll enjoy:
The Importance of An Office Layout
10 Corporate Real Estate Mistakes to Avoid
8 Things to Be Aware of in Your Commercial Leases
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