So you’ve found the perfect office space—the location and square footage are just what you need. But you’re not done with your task just yet because now it’s time to negotiate your commercial lease.
Successfully negotiating can save you hundreds of thousands of dollars over the term of your commercial lease—and bring you peace of mind knowing your business is fully protected.
Here are 12 pointers that will help you cut costs, protect your business, and negotiate with ease.
4 Smart Ways to Prepare for a Commercial Lease Negotiation
1. Clarify your budget and needs.
Determining your budget and nonnegotiables is the first step for any successful negotiation.
You probably have a number in mind for your base rental rate, but don’t overlook the other costs associated with your lease, such as utilities, maintenance services, and parking fees. You’ll also want to forecast additional budget for future rental increases.
Once you’ve outlined your budget, think about your nonnegotiables so you can keep them top of mind. For example, if you anticipate substantial growth in the next few years, you may not want a long-term commercial lease in a space that won’t accommodate your needs.
2. Get to know the neighborhood.
Take a thorough tour of the surrounding neighborhood before confirming the location is right for you.
If your business relies on foot traffic, a competitor around the corner could cut into your customer base. If you offer same-day deliveries, a construction zone could slow down your trucks. If your new location is far from highways or major roads, you and your employees may face increased commute time.
All these factors can negatively impact your business, so it’s wise to get to know your new neighborhood very well before negotiating a commercial lease.
3. Research comparable rents.
The best way to know you’re getting a fair shake on your rental rate is to do your homework. Research rental rates of similar spaces and be prepared to negotiate if your landlord offers a substantially higher rate.
A site like CommercialSearch can help you easily compare rental rates.
4. Get a leasing agent and a lawyer to help you.
If you can, partner with a leasing agent and let an expert negotiate for you. Agents are familiar with the many nuances of commercial leases and may identify more ways for you to cut costs and protect your business.
Since commercial leases are legally-binding documents that can be expensive to get wrong, we recommend having a lawyer look over your commercial lease before you sign. We share plenty of pointers here, but only a legal expert can help you ensure you’re covering all your bases.
4 Price Breaks That Can Save You Thousands
1. Determine who’s responsible for maintenance and repairs.
All your effort negotiating a reasonable rental rate can be quickly undone if you’re responsible for unexpected, expensive repairs or ongoing maintenance.
Ensure the commercial lease outlines whether you or the landlord are responsible for plumbing, HVAC, electrical, and other repairs. It’s also recommended that the lease specifies repair timelines so any major headaches are quickly remedied.
2. Negotiate a ‘cure’ period.
A “cure” period is the time frame in which you are able to rectify breaching the lease. For example, you don’t want to risk being evicted or fined for being just a day late on your rental payment.
Ensure your commercial lease includes a “cure” period so any minor slip-ups don’t result in costly problems for your business.
3. Negotiate a longer term to get lower rent.
Landlords are often more willing to make concessions when you opt for a longer commercial lease term. If you believe the space will accommodate your business needs for years to come, negotiate for a longer term and, with it, a lower base rent.
This is also a good solution if you’re leasing in an up-and-coming area because locking in your lease at a lower rate can insulate you from rising rents.
Just remember: A longer lease is a longer commitment, so you’ll want to ensure every aspect of the lease meets your needs and protects your business.
4. Agree on termination circumstances and fees.
You don’t want a lease loophole to force you to relocate, so carefully review all potential circumstances for lease termination—even those that are unlikely to occur.
What happens if your landlord sells the property? Could you move to another space if you outgrow this one? Could you be evicted for missing rent? Under what circumstances will you be able to initiate a lease termination?
Ask for an early termination option and clarify the associated fees since many lease terminations can result in rather large fees. It’s also a good idea to ensure the lease allows you some grace period if you face financial difficulties, such as having the option to pay one month’s rent instead of the entire amount owed and being able to “cure” a default before being evicted.
4 Crucial Clauses You Don’t Want to Overlook
1. Force majeure clause.
Force majeure is the clause you hope you never have to rely on: It outlines the extreme circumstances under which landlord or tenant obligations may be delayed or excused, such as an act of God, war, or terrorist event.
Since the pandemic, force majeure has become even more important. In 2020, many American business owners were required to keep paying rent during the government-sanctioned lockdowns because force majeure clauses often didn’t include such a possibility.
Don’t make the same mistake. You want your commercial lease to clearly define what falls under force majeure. Legal site Nolo notes that the language of the force majeure clause is particularly important because certain words or phrases can limit the scope of the clause—in general, broader language offers you more protection.
2. Competitor clause.
A competitor clause prevents your landlord from leasing to one of your competitors. This clause can protect you from losing customers to a nearby competitor and is especially important if you rely heavily on foot traffic or road visibility to attract customers.
3. Cotenancy clause.
If you’re leasing space in a business complex that gets a lot of customer visits, such as a strip mall, you may want to negotiate for a cotenancy clause.
A cotenancy clause allows you to break your lease if a fellow tenant that drives business to you relocates. For example, if your business relies on receiving lots of foot traffic from a nearby big-box store, you stand to lose a lot of customers if that big-box store moves across town.
4. Sublease clause.
A sublease clause gives you permission to sublet your office space should you need to move elsewhere. The ability to sublet enables you to recoup lost rent should you outgrow your space or need to downsize sooner than anticipated.
Once the Lease Is Signed, the Furnishing Begins
Now that you’ve smartly covered the ins and outs of negotiating a commercial lease, it’s time for another smart move—using our digital catalogs or buying guides to furnish your new office space.
We can help with desk, chair, lighting, and storage options for businesses of all shapes and sizes. And just like that, one more item is checked off your to-do list…
The material on our site is for informational purposes only, is general in nature, and is not a substitute for professional financial advice.
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