This is normal and something you should anticipate. Much can transpire in a 5- or year lease term between when you moved in and when you need to negotiate a lease renewal. Negotiating a lease renewal is not an overnight process. This can take some time and involves a number of steps, as found in our book, and as summarized below. Do create competition for your tenancy.
Negotiating Commercial Leases & Renewals For Dummies Cheat Sheet - dummies
Create options and play one landlord against another. Share with each landlord that you are receiving other proposals. This often creates a bidding war between landlords with you winning in the end. Do start the planning and site selection process well in-advance.
For existing businesses and lease renewals, begin 12 to 15 months in advance. Do keep success quiet. Some agents and landlords may try to take advantage of some tenants knowing how expensive it can be to move and set up a new business.
1. Regularly Stay Informed of Market Conditions
Do talk to other tenants. For lease renewals, talk with other tenants in the building who have recently renewed leases. Ask how these renegotiations went and what the landlord was willing to agree to in terms of rental rates and further tenant incentives. Do negotiate for lease renewal incentives. For some reason, commercial tenants neglect, or are simply fearful of negotiating for lease renewal incentives.
Can Restaurant Tenants Negotiate Free Rent?
You can negotiate for better terms. Also, look at whether you can sublease the space. If sales decline, subleasing the whole space could allow you to move elsewhere without paying a hefty lease termination penalty. Alternatively, you could sublease part of the space to help cover the rent. Businesses often need to renovate a new space to suit their needs.
You should make sure the lease and zoning allow your planned leasehold improvements. As well, you can seek a clause requiring the landlord to reimburse some or all of your leasehold improvement costs if the landlord breaks the lease. You can ask for a competitor clause in the lease that requires the landlord to get your consent to rent space in the building to a competitor. This may be particularly important to retailers. The duration of your commercial property lease can range from month-to-month to several years.
Be sure to understand when and how the lease will be renewed. Also ensure that you have the option to renew the lease at the end of the term, if that is important to you. You may be able to negotiate other options, such as the right of first refusal to lease an adjoining unit for expansion. Alternatively—if the rental market has declined, for example—the landlord might give you a better deal when you renew.
Landlords typically submit their own lease to prospective tenants. Start or buy a business Business strategy and planning Money and finance Get financing Buy or lease commercial real estate Manage your finances Marketing, sales and export Employees Operations Technology Change of ownership Entrepreneurial skills Entrepreneur's toolkit Blog. Search articles and tools. How to negotiate a commercial lease effectively.
Evaluate your business needs.
Understand your costs Carefully review the incidentals you are being asked to pay for to make sure the total cost fits your budget. Understand your lease options The costs covered in the lease can vary greatly, based on the type of lease. In a gross rent lease , you pay a single amount to the landlord that covers base rent and all incidentals. Those typically include utilities, property tax, insurance, maintenance, repairs and common area expenses, such as snow removal, janitorial services, landscaping, grass cutting and property management.
Another option is a modified gross lease , in which you and the landlord share some combination of incidental costs. This usually results in a lower rent. The main differences between net leases are as follows. In a net lease , you usually pay for the base rent plus one of the following: property taxes most common , insurance or utilities.
Your landlord pays for all other expenses. In a double net lease , you pay base rent plus property taxes and insurance. In a triple net lease , you usually pay base rent, plus property taxes, building insurance and utilities, as well as other operating and maintenance costs. In a percentage rent lease , you pay a base rent plus a percentage of your gross sales over a certain minimum.