Owners of small businesses don’t understand that commercial leases are negotiable. As with apartment leases, commercial space leases can be negotiated both at the start and at lease expiration when it’s renewal time. Landlords often don’t want to lose tenants.
They hate to devote capital to finding new tenants while suffering from vacancies. It’s usually in their financial interests to retain a tenant. It’s also in their best interests to fill empty units. Tenants have more leverage than many of them imagine they do when it comes to lease expiration.
Commercial Agents Help Turn A Lease Expiration Into A Renewal
Commercial leases are tomes of legalese with all sorts of legal traps. The vagueness of the language often gives landlords broad discretionary powers. Landlords are in business to maximize profits. They want to charge as much as possible while controlling the terms to suit their interests.
As a result, the standard lease used by most landlords has been written by lawyers to favor the landlord.
Lease negotiation is vital to the success of your business
Failing to study leases carefully and negotiate for terms that work for your business could destroy profits and even force the business’s closure when you approach lease expiration. Everything is negotiable, including the following:
- Parking spaces.
- Lease terms.
- Termination conditions.
- Repair costs.
- Tenant improvement allowances.
Commercial agents know the market rate for all types of commercial spaces. Landlords will try to get as much as they can but also know an experienced agent knows the market rate and won’t let the landlord charge too much. Landlords are typically willing to lower rent when they are getting something in return, such as a longer lease instead of a lease expiration.
When working with a commercial agent, it’s important to thoroughly answer questions about what terms your business needs to make the lease work in its favor. For example, are parking spaces important? Dedicated parking is important for many businesses. Other tenants who need dedicated parking spaces may have these spaces codified in their lease, and not doing so can put your business at a competitive disadvantage.
However, if the lease comes with parking spaces you don’t need, a commercial agent can negotiate them out of the lease for lower rent.
Tenant Improvement Allowances
Reconstructing the space is often critical to the success of the business, especially retail spaces. A tenant improvement allowance provides the tenant with funds for making these essential improvements.
Without these allowances, many tenants could not afford the improvements they need. Tenant improvement allowances help, but there is no free lunch. Landlords use the many terms in a commercial lease to make up for these allowances.
To recoup these funds or at least make the deal more profitable, landlords may do the following:
- Charge higher rent.
- Insist on a longer term.
- Charge extra for routine maintenance like snow removal.
A good commercial agent knows these tactics and can negotiate to ensure that the tenant improvement allowance won’t come back to haunt you on the back end.
Leases Are Written On Paper, Not In Stone
A typical negotiation tactic for landlords is to plunk down a long, complex lease and pretend the terms are fixed. Tenants can defeat this tactic by having the lease reviewed by a commercial agent. Commercial real estate agents understand that everything in the lease is negotiable. They can read it thoroughly and negotiate not just the lease terms, but the language itself.
Landlords want to keep profitable tenants in leases for as long as possible. They also want the flexibility to change things in ways that benefit them. For example, a commercial lease may contain a provision allowing the landlord to force a store to move to a different location in a shopping center.
Commercial agents save clients from terms that could hurt their businesses while also forcing the rewrite of wiggle words, which give the landlord the opportunity to make changes the tenant may not anticipate.
Are you facing a lease expiration soon? We can help negotiate a better deal. LCI Realty provides commercial real estate consulting services for the Phoenix metro area. We know that success in the commercial real estate arena involves finding the right business partners. Contact us today.
Click here to read more from LCI Realty.