How to negotiate your commercial lease

Stu Little
negotiate commercial lease
Published on September 12, 2022

Tips to help you negotiate a commercial lease that will set your business up for real estate success every time.

Are you getting ready to find a commercial lease for your business? This can be a daunting and nerve-wracking task, so you should prepare yourself to negotiate the best possible price for your future office space. Picking the right commercial lease for your business can set you up for success for many years to come, just as choosing the wrong building might lead to disruptive issues. 

Below, we’ve outlined tips and tricks on negotiating your commercial lease that make this process easier overall. 

Understand Your Lease Type 

There are multiple types of lease options for a commercial space. Here are the most common: 

  • Gross Lease: You pay one amount for your rent and all incidentals, which include utilities, property tax, maintenance, repairs, and property management. 
  • Modified Gross Lease: Similar to the above, but you and the landlord split those incidental costs. 
  • Net Lease: In this lease, you only pay for the rent plus one incidental, such as property taxes, insurance, or utilities. Your landlord covers everything else. 
    • A double net lease means you pay for two of those incidentals. 
    • A triple net lease means you pay for all three. 

Before you negotiate your commercial lease, you need to understand what type you’re signing up for, because each type will require different negotiating tactics. 

Know Your Budget

Before you even start looking for a property to rent, let alone negotiate a lease, you need to know your budget. You don’t want to spend too under or over, but a firm number is essential before you negotiate. Staying strict with that overall price lets your landlord know how much you’re willing to pay so you two can create the best deal for your commercial lease. For instance, are you looking for a gross lease? Those tend to run higher in price. Or are you looking for something like a net lease, which is less expensive? 

Review Your Lease, Front to Back 

To negotiate your lease correctly, you need to read every word and ensure you understand everything expected of you and your landlord. Here are some specific items to look out for besides just the base lease:

  • Competitor Clause: This ensures that your landlord cannot rent another space in the same building to a competitor of your business. A competitor clause is beneficial if you rent in a larger facility with many companies.  
  • Leasehold Improvements: You want your office to fit the best for your needs, so if you need to renovate to make that happen, ensure your landlord allows that within your lease agreement. Since you’ll be enhancing your landlord’s space overall, see if there are any clauses to cover those costs for you as you renovate. Or see if you negotiate the base lease price to be less expensive if you’re willing to cover the cost of the renovations.
  • Renewal Conditions: These are the details of how you will renew your contract at the end of your rental period. Make sure you’ll have the right to renew your lease and the first opportunity to lease a neighboring unit if it becomes available, to make it easier to expand your business. Sometimes, you can get a better lease price if you agree to a longer rental period. 
  • Termination Conditions: If your landlord can terminate your lease at any point, ensure you understand why and how. As well, if you need to move locations because of expansion or other reasons, make sure that option is available for you in your lease. 

If you want to improve your lease conditions or see something you want to negotiate, speak up. For example, you might ask your landlord to change your lease from a net lease to a gross lease if you’d like to add a competitor clause or leasehold improvements. Know your goals going into lease negotiations so you can add and shift things you need. 

Research The Property 

Look up and research as much information as you can about the lease, building, and landlord. Speak with past tenants and ask them about how much they paid and if they found the landlord reasonable to work. What’s the history of the building? What are the total monthly costs? That question is fundamental if you’re signing up for a gross lease to understand how much you’ll pay in incidentals. Is the building older and runs into a lot of issues? Compare the price of this lease to other locations in the area.

These are a few examples of questions you should have answers to, so you can potentially use these details as negotiating points. If your office space often runs into repair problems, for example, you might ask the landlord to come down on the base lease price, especially if you’re covering for those repair costs such as in a gross lease. 

Don’t Sign Your Lease Too Early 

Once you sign the paperwork, you won’t be able to negotiate any more details. That’s why it’s imperative to take your time and only sign the lease when you know you’ve got the best option for yourself and your business. While you may be excited and want to jump into your new space immediately, take your time and don’t rush into something you might regret later down the road. 

Dreaming Of Owning Your Own Space? Consider Lease-to-Own

Purchasing your own building may not be a reality for your business right now. Down payments are challenging to save up for, especially in today’s real estate market. However, lease-to-own processes are a great way to have the best of both worlds. Lease-to-own lets you lease your dream office location at a much more affordable price versus purchasing the building right off. In the future, you can use the money you’ve spent leasing to own the building. 

withco helps small business owners accomplish their dreams of owning commercial real estate with lease-to-own opportunities. Learn more about your lease-to-own process.

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