Have an Ally at the Table
A tenant rep is a major asset during lease negotiations. With their knowledge of the market, they know what’s fair and what’s not and can provide valuable input during talks. Best of all, their services won’t cost you a dime, as your landlord pays their fees.
Envision What You Want
You can’t negotiate effectively if you don’t know what you’re fighting for. Before you head into talks, carefully peruse the contract and have key members of your team such as your tenant rep, attorney and accountant do the same. Identify areas of the contract that need to be changed for the document to be acceptable. Then, create a prioritized list of things that you would ideally like to have added, changed or eliminated. Be prepared to give up less important items.
Know What’s Negotiable
Knowing where there is flexibility in contracts can help you create the aforementioned wish list. The following are some of the most common points of negotiation for commercial leases:
- Base rent rates. You can often negotiate a lower rental rate by extending the length of your lease.
- Tenant improvement allowances. Landlords may be willing to spend more on improvements to customize or enhance your space, especially if they will increase the value of their property.
- Rent increase caps. If there is no cap on the amount that your rent can increase at renewal, argue for one. You can also ask to have an existing cap set lower, especially if it is out of line with the average increase rate in your area.
- Right to sublease. Having the ability to lease all or part of your space to another company can help to future-proof your lease.
- Multiplying factor. Ask the landlord to explain how the multiplying factor is calculated. This figure determines how you are charged rent for the shared square footage in the building, and it can often be negotiated.
- Rights of first refusal and first offer. Adding these clauses to your lease ensures that you’ll have a chance to lease any new space in the building that becomes available and that you will have the opportunity to renew your lease before your landlord offers it to a new tenant.
Do Your Homework
Having facts and figures about the commercial real estate market in your area at the ready can give you leverage at the negotiating table. Find out what the average rental rate is for your area and what types of terms similar companies are given. It’s also helpful to know what amenities and perks competitor buildings offer.
Don Catalano of REoptimizer outlined these tips for negotiating a commercial lease.
