Most business owners I know are really good at what they do. They are also usually great negotiators in their industries, but they aren’t always aware of the impact when it comes to negotiating commercial real estate leases for their own businesses, including lease extensions and lease renewals.
I can’t tell you how many times I see business owners sacrifice opportunities to significantly improve their lease terms and rates because they are not aware of everything up for negotiation. They think they can handle it themselves and end up missing out on the best deals because they simply aren’t aware of what’s available. Some of the main points to consider include:
- Termination options – these options provide flexibility to the tenant in the event that business space needs change during the term of the lease
- Right-of-first-refusal for expansion space – a different type of option in favor of the tenant, useful if there is potential for your space needs to increase during the term of your lease
- Concessions – include financial incentives like moving allowances, tenant improvements, and rental abatement in order to entice quality tenants to lease their facilities
- Cap on operating expenses – many commercial leases pass operating expenses on to the tenant; this generally cannot be avoided. Make sure to mitigate your exposure to excessive annual increases by negotiating a cap or ceiling to the tenant portion of any increase. Check with a local market expert to determine what is standard in your market
Even if you’re facing just a “simple” lease renewal, there can be just as many available concessions and negotiation points as in the initial lease. Renewing tenants are far more profitable to landlords than new ones. Understanding this will help leverage your renewal options.
It is important to understand comparable lease rates and terms from competing properties when negotiating a new lease or renewal. Business owners may be able to find limited info on various Internet sites, but what they are seeing only represents a fraction of the intel. What about off-market availabilities, lease concessions, and soon to be available properties? It pays to seek expert advice with local knowledge.
In 99 percent of the cases I have seen, business owners negotiating their own leases without expert representation end up wasting valuable time from their core business, and they spend a significant amount of effort negotiating without the proper tools and knowledge.
There is a misconception that hiring a tenant representation broker costs the tenant extra, but the current industry standard is for the landlord to pay all the brokerage fees for new lease acquisitions and renewals. In most cases, representation will not impact the cost of your lease.
Working with a trusted real estate advisor can save your business more than just time and money. A good broker/advisor has a thorough understanding of current market concessions, comparable rates and other market indicators to aid in negotiating the best possible deal and will help protect your business from unnecessary risk allowing you sleep better at night.
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