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6 Tips For a Successful Commercial Lease Negotiation

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If you are responsible for finding new spaces for your company, you will have to become a master at commercial lease negotiation. While the process might seem complicated, like most business activities, when broken down into steps, it can be quite manageable. Here are 6 tips to help you with your next commercial lease negotiation.

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6 Tips For a Successful Commercial Lease Negotiation

  1. 1. 6TIPS Successful Commercial Lease Negotiation For A
  2. 2. Start Early If you ask a landlord representative, he might tell you that six months is more than enough time to find a new space. He's right -- six months is enough time for you to end up coming to your landlord, hat in hand, begging for an extension of your existing lease or a renewal. Getting a new space for your business takes at least a year. In a normal market, it's best to give yourself 18 months or two years in a recession where new construction space can be hard to find or where financing for purchases or tenant improvement work can be unavailable. Why does it take so long?  Let's work backwards. It's nice to have at least a month after construction is essentially finished for testing, moving and for resolving punch list items. Build outs can easily take a couple of months. When you and the landlord have attorneys involved, the negotiating process can take anywhere from one to two months. At this point, we've already spent four to five months. 1 Step 1 www.reoptimizer.com
  3. 3. In a perfect world, your market is filled with empty spaces, you see the perfect one on the first day and the landlord doesn't make you waste too much time negotiating. In the real world, great spaces are harder to come by. You might have to wait for them to come on the market, and you might have to start a few unsuccessful negotiations. All of that takes time. Furthermore, the more time that you have, the less pressure you feel to find a space. This lets you negotiate from a position of greater strength and confidence and, ultimately, get yourself a better deal. 2
  4. 4. Learn About Leases The first step in learning about commercial lease negotiating is to learn about what you'll be negotiating. One of the best ways to learn about leases is to read a few of them. Dig through your company's files and find some lease documents so that you can get familiarized with the language and terms that they contain. Typically, leases discuss: • What you pay in rent • What other expenses you pay • How your rent changes over time • When you move in • How long you can stay in the space • Your ability to assign the lease or sublet the space 3 Step 2 www.reoptimizer.com
  5. 5. • Your rights and obligations when the lease is running • Your landlord's rights and obligations • Your rights and obligations when the lease expires • What your landlord is throwing in for free 4 Lease Terms That Give You Options
  6. 6. Research the Market Once you know what to look for, the next step in the commercial lease negotiation process is to find out what is generally normal in your market. While the type of research you do can vary, here are some of the common commercial lease negotiation factors to try to learn about: • Rental rates for similarly sized spaces in comparable buildings • Rent increase norms • Lease types (gross, triple net, modified gross) • Typical lease and option terms • Typical landlord concessions (free rent, tenant improvement allowances) 5 Step 3 www.reoptimizer.com
  7. 7. Decide What You Want Once you know what is normal in a commercial lease negotiation, you can start to formulate a plan and decide what you would like to ask for. For instance, you might know that 5,000 square foot class A office spaces usually rent out on five- year terms at $32 to $35 per square foot gross with five months of free rent and $20 per square foot in TI allowances. If you are looking for a ten-year lease, which is typically more landlord friendly, you might ask for $31 rent, 6 free months and $30 in allowances. As you decide what you want to ask for, remember one of the cardinal rules of commercial lease negotiation. To get what you want, you have to ask for a little more. So if you want to end up with the above lease term, you might go in asking for $29 rent, 9 free months and $35 in allowances. 6 Step 4 www.reoptimizer.com
  8. 8. Go Beyond Rent Landlords with a long time horizon typically look at the total economic picture of the lease. Those who are closer to selling the property might be more focused on simply maximizing the rental rate. If you can go into your commercial lease negotiation knowing what your landlord needs, you can better tailor your offer to give them what they need and give you what you want. For instance, a landlord that is focused on maximizing their rent rate might be willing to give you a shorter term lease or more generous concessions up front in exchange for an extra dollar or two of rental income. Even if you don't know what your landlord specifically needs, simply negotiating the entire picture of your lease can save you money. Try to focus on the total cost of the lease instead of on each of its pieces separately. Doing this will let you find savings. 7 Step 5 www.reoptimizer.com
  9. 9. Get Professional Help Finally, when you enter a commercial lease negotiation, it's crucial to not go alone. A comprehensive team of professionals can help you achieve a higher level of success. Space planners or architects help you understand how each space's idiosyncrasies will work out when you actually have to configure and occupy it. Attorneys help you craft legally favorable deals. Most importantly, tenant representatives bring market knowledge and negotiating skill to help you craft the best possible occupancy structure. Your tenant representation specialist has only one party's interest in mind -- yours. Since they work for you, they are charged to aggressively respect your interests in the negotiating process. They keep your confidences and push for terms that meet your needs, instead of the landlords. 8 Step 6 www.reoptimizer.com 5 Reasons You Need a Tenant Representative
  10. 10. Other great Resources For great commercial real estate & tenant tips: View REoptimizer®’s other great resources: Follow us on social media: © 2007-2015 REoptimizer, Inc. All Rights Reserved. 9 Learn More Subscribe to our Blog Explore our Resources www.reoptimizer.com

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