Negotiating a Commercial Lease – Don’t forget to Negotiate Details and Incentives

Are the terms of the commercial lease negotiable? Negotiable terms include the base rent, free rent, security deposits, length of the lease, how much your rent and fees can be increased each year, lease renewal options, penalties, etc.

  • Ask about the possibility of sub-leasing part of the space if your business doesn’t do as well as you’d hoped.
  • What are the terms for rent increases? This can be negotiated for future years with options and rights of first refusal when your lease term is up.
  • What insurance coverage does the lease require?
  • Amenities – Ask the landlord if there are any amenities he can offer, such as special reserved or covered parking. Request a moving allowance or free rent for the first one or two months.
  • Is the security deposit necessary? Landlord asks for Security Deposit as standard procedure, but do they require one?
  • Is the hold-over penalty too high? Standard hold-over penalties in first draft lease agreements are typically far higher than necessary.
  • Are you getting enough landlord incentives relative to other deals in the market? Are you getting accurate, current market data to insure you don’t pay too high a rental rate in relation to incentives?
  • Are you maximizing benefits like free rent before and after lease commencement, discounted rent for various time periods, Landlord contributions to tenant’s build-out costs, landlord improvements to the space, limits on future rent increases, etc.?

Experience tells us a Landlord’s “flexibility” changes constantly depending upon current occupancy rates in both their building and the competition, lease length, tenant’s use, parking requirements, financial strength of tenant, etc. Negotiations are especially important with lease renewals, since Landlords are most competitive at inception, when the space was vacant.

Did you obtain outside incentives? Did you check into economic incentives from local government? (tax rebates, relocation assistance, payroll subsidies during employee training, infrastructure improvements and others) Many times the statutory incentives can be negotiated up very substantially and an inexperienced company may not receive millions of dollars that they could have gained through such incentives.

 

Leave a Reply