Tips to Negotiating a Commercial Lease

1. Be informed, ask questions

Before starting the process of negotiating a commercial lease, you’ll want to make sure to complete your due diligence beforehand (on your company needs and on the commercial real estate market). Since you probably are not doing office leases every day it’s important to do research on the location and surrounding commercial real estate to get familiar as you start the process. To do this most effectively it is best to involve a local broker that deals with the area and type of office lease you are looking at on a regular basis.

Understanding the market can help you and/or an advisor craft the best terms when it is time to negotiate a lease. Most professionals will be able to access or speak to the current terms being completed in the market as "comps" to get the best terms for your lease. There can be a lot of back and forth in commercial office lease negotiations, and this is often a huge time waster if there is simply too much room between the two parties. Getting the best deal is the goal, but it is important to start negotiations (even aggressive ones) based on knowledge of current market conditions. This will also give you better participation from the other side of the table.

2.  Lease term will dictate a lot of your leverage

As you move into discussions with your potential new landlord keep in mind that the length or your lease is probably the most signifcant factor to achieving your desired terms. 

Shorter term leases (two years or less), if allowed by a landlord, will typically be met with far less willingness to negotiate the "asking rate" than a 3 - 5 year lease or longer. Most commercial landlords are willing to offer deals for tenants in addition to providing concessions such as reconfiguration of the space etc. on longer leases.

You should decide what lease term makes sense for your business and see what options in the market fit. There are certainly options available at every length of lease but the ability to customize the space with construction or new items such as lighting, flooring or finishes, and discount terms may be difficult. Once you understand what the market is for your desired term, you can use additional term to generate the benefit you need to make a space work or meet a minimum term requirement of a building you fall in love with. 

3. Get everything in writing!

Before agreeing to the final contract and lease terms for your commercial property, it’s important to ensure all the deal points are included in the actual lease (as well as documented througout negotiations). 

This may seem like common sense, but you do not want a deal point or responsibility of the landlord that was important to you (and you won!) to get lost in the closing process of leases and checks being cut. If you work with an advisor they will typically provide another set of eyes to cross check the business points of the lease that were discussed throughout the process. It is also highly recommended to go over the contract terms with an attorney before signing.

Knowing how to navigate through lease negotiations is key to getting not only the best deal but also to set clear expectations for your new office space. Connect with local advisors to start your search or find out more.