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The Key to Negotiating a Great Lease

Everything is Negotiable

Negotiating a lease with a landlord is like any other negotiation. How much is negotiable? In theory, everything is, especially if you are at the point where you are negotiating over lease terms like rent and property taxes. In that case you need to understand that you are in fact a very valuable commodity. It is not easy, especially today, for a landlord to find a qualified commercial tenant. He or she probably wants you as much as you want the space.

You may be in the power position and not even realize it.

A “triple net lease” is one where it is the renter who pays, in addition to rent, all taxes and other operating expenses.

Example: Jill had been in the same building for years. When her lease was set to renew her landlord inexplicably looked to increase her rent, figuring she would never leave after so many years in the same location. But Jill demurred, stating that no increase was warranted given local vacancy rates. The landlord insisted on the rent increase. Jill found a better deal and did indeed move. Her old space? Still empty.

So the first thing to understand is that in order to negotiate a good deal on your lease, you need to do some homework. What are similar spaces renting for? What is the vacancy rate in the area? The more you know, the better deal you will be able to negotiate.

Things to consider when negotiating a lease

Rent: When negotiating a long-term lease, be sure to ask for a few months free rent.

Gross or net? A gross lease is one where the landlord pays the taxes, insurance, utilities, maintenance and so forth. A “triple net lease” is one where it is the renter who pays, in addition to rent, all taxes and other operating expenses. So, with a triple-net lease, you must be very clear about what is, and is not, included.

Assignments and subleases: Negotiate for the right to assign or sublet your space, so that if you need to get out, you can. With an assignment, the new tenant will be responsible for the rest of the lease obligations – rent, etc. With a sublet, you act as guarantor – the new person is responsible, but if they default, you are legally still on the hook. Either way, the landlord will want the right to review or refuse the person you pick, and that is reasonable.

Escalation charges: Be sure also to try to restrict any “escalation charges” for later years. Escalation charges cover things like increased property taxes, higher insurance costs, maintenance increases, etc. Although you will be asked, you do not have to agree to share these costs.

Signs: Discuss the issue of signage early, long before you sign any agreement. Sign issues can be deal-breakers.

Utilities: Under some leases, the lessee must purchase the utilities from the landlord. In that case, be sure that the lease grants you the right to audit your utility bill. That keeps everyone honest.

Renovations: Your landlord may agree to contribute to renovations before you move-in because doing so increases the value of their building. Added bonus: It helps lock you into a multi-year lease.

Restrictive Covenant: You may want to ask for a restrictive covenant to prevent competitors from opening similar businesses in the building, area or mall.

Finally, it is important that you review the proposed lease with your lawyer. The lease was drafted by the landlord’s lawyer for the landlord’s benefit. Having your own lawyer then will help you understand what is reasonable in the document. Although you might be presented with a pre-printed lease that seems like it cannot be changed, it can. A contract is also called an “agreement” for a reason. Both sides must agree to all conditions. If you find something that you and your lawyer do not like, negotiate to change them.

Always remember: Everything is Negotiable.

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About Steve Strauss

Senior small business columnist at USA TODAY and author of 15 books, including The Small Business Bible, Steve is your host here at TheSelfEmployed.com.


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