Depending upon your niche, having a physical space for your small business is a vital step toward a healthy, profitable business. How do you know if your prospective landlord is giving you a fair lease? As a business owner, negotiating on behalf of your business is a must, but how do you ensure that you can navigate the potentially dangerous waters of commercial real estate?
This article will help you prepare for the negotiation process and hopefully allow you to secure a fair and profitable deal. Even if you reach all of your sales goals, an unfair lease agreement can be a sinkhole in your business’ profitability.
Come to the Table Prepared
Know your total budget and the lease stipulations that are a must-have. Also, keep several compromises in mind on the more flexible stipulations.
Consult With Professionals Who Know the Local Laws and Markets
Commercial real estate investing experts have market insights into local governments’ local laws, ordinances, and political agendas. This knowledge is crucial to have in supporting your negotiation authority. You must know the information that your landlord will utilize to maintain any sort of leverage in securing the best deal.
It goes without saying that you should also consult with a lawyer specializing in CRE leases before sitting down to negotiate.
Request a Rent-Free Period
Rent-free periods are relatively common and allow your business a grace period to settle into a new location. These can be attractive to landlords because, by filling stores, they are increasing foot traffic and visibility for other businesses on the property. They may offer you a rent-free period and have you only pay operating costs or common area maintenance (CAM) charges for parking lot upkeep, trash removal, landscaping, etc.
Never Pay the Upfront Price For Rent
Like in any business negotiation, landlords never expect the upfront price to be the one you actually agree to, but your counteroffer should not vastly undercut the landlord’s initial offer. Plan a counter offer anywhere between 10% – 15% lower than the landlord’s initial price.
You May be Able to Negotiate a Better Base Rent by Agreeing to a Longer Lease Period
Depending upon your business goals, it may be in your best interest to take a longer lease in exchange for a lower rent.
Consider Asking for a Break Clause
Break clauses allow you or the landlord to terminate the lease based on agreed-upon terms. These clauses can take many forms, but generally, they are designed to give you or the landlord an escape hatch from the duration of the lease.
Consider Asking for a Fair Cure Period
Cure periods are windows of time wherein you can rectify any violations of the lease. If, due to a clerical or technical error, you miss the due date for rent, then you might have a cure period of five business days to get it to the landlord.
Make Sure You Check the Square Footage For Yourself
Landlords might include some unusable space or sections of the common area in the square footage listing. Make sure you measure for yourself because you should only pay for usable space!
The property manager may not have updated the data on the space’s dimensions after repairs, new construction, or alterations.
Never Sign the Lease as an Individual
This is where having an LLC is extremely important. You, as an individual, do not want to be legally responsible for fees if things don’t go according to plan. If you are designated as a sole proprietor, consider making an LLC. It’s in the name – limited liability!
Be Prepared and Ready to Haggle!
Remember that preparation prevents poor performance! If you have done the hard work upfront, then you should be able to negotiate a favorable lease agreement that will satisfy both you and the landlord.