Inc.’s How To Get a Good Deal on a Lease
Inc. has a great article on the how-to’s of getting a good deal on a commercial lease.
[The article appeared in the May 2009 issue.]
Even though signs are showing that the residential real estate market may have already bottomed out and may be poised for slight upticks in certain markets, commercial real estate is becoming more and more a tenant’s market.
In the commercial real estate market, now may be the time to take a good look at that existing lease and renegotiate the terms.
From Inc.:
A commercial lease is a long and complex document, and negotiating one can be daunting. But a prospective tenant has a great deal of leverage at the moment. It has always been true in principle that everything in a lease is negotiable. Now, it’s true in practice, too.
This article gives some great advice for those of you not familiar with the structure of a commercial lease. Listed below are some things to consider before signing your lease (summarized from the article):
1. No matter how good a negotiator you are; don’t go it alone.
A good broker is essential, because he or she will know what landlords in your area have been offering to lure tenants, but you will also need a lawyer who knows commercial real estate.
Ned Harper, director of the Daytona State College SBDC:
“Brokers tend to like the lease — they don’t tend to bring things up unless you do.” A real estate attorney, on the other hand, “has seen what clauses are going into contracts. He’s the one who’s written them.”
2. Measure the space before you sign a lease.
Depending on how many times the space has been re-sized the floor plan used to determine the lease may be not accurate. Sometimes leases explicitly limit redress for a tenant that finds out after the fact that it’s paying for more space than it actually has.
3. Be aware of which expenses your landlord proposes to bill, particularly as part of CAM.
CAM = Common Area Maintenance. Some lease documents may include depreciation as a CAM expense. Ensure the right to see for yourself the expense budget, as well as which costs are actually incurred. Utilities are also borne by the tenants. In shopping centers, tenants are metered individually; in office buildings, utility costs are apportioned by square footage.
4. Maintenance Items…
You should get the HVAC systems inspected, along with the plumbing and electrical equipment. If you find problems, make it a point of negotiation.
5. Dont’ try to re-write the lease.
“Leases almost always favor the landlord. But you can build in clauses that level the playing field. Be strategic in setting priorities. “I try not to make wholesale changes, because they’re not likely to be accepted,” says Rick Gier, a lawyer in Overland Park, Kansas. “I’m more concerned with making four or five important changes than 20 small changes.”
6. Include a co-tenancy and exclusivity clause.
A co-tenancy clause lets a renter escape the lease if the landlord doesn’t replace the anchor in a specified period. An exclusivity clause guarantees a direct competitor won’t move into the same development.
7. Establish guaranteed selling points.
Landlords often make a selling point of high occupancy rates or a large number of monthly visitors. You should get these in writing and the exacting concessions (including the freedom to leave) if the landlord falls, say, 20 percent below the guarantees.
With the commercial real estate market taking a downward slide, now might be the best time to get a great deal on that space you have had your eye on for some time, or this might be the time when your lanlord will make consession on your current lease. Remeber: don’t swing for the fences in your lease negotiations, but rather try for a walk or a single. The landlord is in the game for the same reason your are…to make a profit. But short term consession might serve you both in the long run.
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