The Essential Elements of a Commercial Lease Renting a space for your business can feel overwhelming. Go in armed with knowledge and it will be much easier.
By Entrepreneur Staff •
If you've never been involved in renting commercial space, your first glimpse of a commercial lease may be overwhelming. They are lengthy, full of jargon and unfamiliar terms, and always written to the landlord's advantage. But they are negotiable.
Whether you're working on the deal yourself or using an agent, the key to successful lease negotiations is knowing what you want, understanding what the lease document says and being reasonable in your demands.
For retail space, be sure your lease includes a bail-out clause, which lets you out of the lease if your sales don't reach an agreed-on amount, and a co-tenancy clause so you can break the lease if an anchor store closes or moves.
If you have to do a lot of work to get the space ready for occupancy, consider negotiating a construction allowance -- generally $10 to $25 per square foot -- to help offset the costs.
Be sure you clearly understand the difference between rentable and usable space. Rentable space is what you pay for. Usable is what you can use and typically does not include hallways, restrooms, lobbies, elevator shafts, stairwells and so forth.
You may be expected to pay a prorated portion of common area maintenance costs. This is not unusual, but be sure the fees are reasonable and that the landlord is not making a profit off them.
Also, check for clauses that allow the landlord the right to remodel at the tenant's expense without approval, and insist on language that limits your financial liability.
The first lease the landlord presents is usually just the starting point. You may be surprised at what you can get in the way of concessions and extras simply by asking.
Of course, you need to be reasonable and keep your demands in line with acceptable business practices and current market conditions. A good commercial real estate agent can be invaluable in this area.
Avoid issuing ultimatums. They almost always close doors -- and if you fail to follow through, your next "ultimatum" will not mean much.
Consider beginning the process with something that is close to your "best and final offer." That way, your negotiations will not be lengthy and protracted, and you can either reach a mutually acceptable deal or move on to a different property. The longer negotiations take, the more potential there is for things to go wrong.
Essentially, everything in the lease is subject to negotiation, including financial terms, the starting rent, rent increases, the tenant's rights and responsibilities, options for renewal, tenant leasehold improvements, and other terms and conditions.
You and your agent can negotiate the lease, but then it should be drawn up by an attorney. Typically, the landlord or his attorney will draft the lease, and an attorney you hire who specializes in real estate should review it for you before you sign.
Technology and statistics are important elements in your site selection decision, but nothing beats your personal involvement in the process. Real estate brokers and economic development agencies can give you plenty of numbers, but remember that their job is to get you to choose their location.
To get a balanced picture, take the time to visit the sites yourself, talk to people who own or work in nearby businesses, and verify the facts and what they really mean to the potential success of your business.
