Part of being a knowledgeable entrepreneur is knowing how to negotiate. In leasing a commercial space, it is important to negotiate the terms with the landlord in order to get a fair standing on the contract.
7 Tips to Negotiate a Commercial Lease Contract
1. Get Initial Asking Terms in Writing
During the preliminary exchanges or meetings with the landlord or leasing agent, the best practice is to ask the terms in writing. You can ask a formal letter or email that contains the pertinent leasing information you need.
This serves as your reference when comparing different offers. Conversely, you might misunderstood the terms when you only received it through verbal exchanges.
2. Carefully Consider the Lessor Name.
You have two options when you lease a commercial space, whether to take it in a separate limited company or in your own name. The safest, however, is not to name the lease in your name as it may burden you with significant liability.
3. Keep the Competition at the Minimum
In leasing a commercial space, it is important to get a pulse on the competition within your vicinity. Sure, you don’t want to be near a direct competitor. For that matter, you might want to negotiate an exclusivity clause in your contract to keep direct competitors from leasing a commercial space in the property. This is especially beneficial for the tenants but the landlord will definitely balk on this.
On the other hand, you can also invoke the right to first refusal which obligates the landlord to consult you any deals he is arranging with a third party. This allows you to match the deal and preclude the occupancy, especially if it is a direct competitor that can take a toll on your business earning.
4. Avoid Radius Restrictions
When your business grows, one thing that you want to do is to branch out and open up a second branch. However, some commercial lease contract might include an unreasonably large radius restrictions that prohibits you from opening a second branch in your desired location. So, before you sign a commercial lease contract, make sure the radius restriction is fair for you.
5. Make the Most Out of Your Rental
Don’t assume that essential utilities and facilities for your business are already included in your rent. It is still wise to make sure you are making the most of your rental. Good to know, you have the opportunity to negotiate the utilities, facilities and other benefits that you want to be included in your lease before signing the commercial lease contract.
Things that you should look after include:
- Real estate taxes
- Cleaning services
- HVAC (heating, ventilation, air conditioning)
There’s no standard lease package. That’s why it is really up to your negotiating skills on how you can make the most out of your rent.
6. Negotiate a Break Clause
If you want to end your commercial lease agreement as easy as you entered in it, you must negotiate a break clause. This clause allows the tenant to end the commercial lease contract prematurely or before the term expires. It is crucial to secure a favorable break clause because this will help you move out in case the business didn’t work well or when you have to expand and move to a better commercial space.
However, if it’s already included in the agreement, you still have to pay close attention to the content of this clause. It might include strict terms that are impossible for the tenant to comply with.
7. Secure an Assignment and Subletting Clause
If in case you fail to secure a break clause, your remedy would be the Assignment and Subletting clause which allows you to assign the space or to a third party or sublease it. This not only helps you in times when you need to move out but are locked into the commercial lease contract, it also allows for mergers and reorganization of your business.
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