6 Tips for Negotiating a Commercial Lease

6 Tips for Negotiating a Commercial Lease

You’ve found the perfect location for your small business. Now that the search for space is over, the hard part begins — negotiating your commercial lease. Here are six tips for negotiating a favorable commercial lease for your business:

1. Set the term and payments.

If you are just starting your business, you’ll want to negotiate in as much flexibility as possible into your lease agreement without over committing yourself. Try for a one to two year lease with an option to renew. You will also need to negotiate in any potential rent increases over the term of the lease and upon renewing, so you don’t get hit with an increase with no warning, which can harm your cash flow. Be sure to negotiate a cap for those increases so you know your overhead for the next few years.

2. Watch for expenses.

Typically, landlords will make tenants responsible for certain maintenance and upkeep on their leased space. If you are negotiating a net lease — meaning that you will be responsible for other costs in addition to your rent — determine exactly what expenses you will be responsible for so you can negotiate the lease to be as favorable to you as possible.

3. Determine responsibility for maintenance and repair.

With residential leases, the landlord usually is responsible for maintenance and repair. This is not true with commercial leases. Some landlords require tenants to be responsible for all maintenance and repair to the leased space and others may include equipment as well, such as air conditioning and plumbing systems. If this is the case for your building, clarify exactly what you will be responsible for maintaining and, if possible, a cap on the amount you must pay. A real estate attorney can advise you of your legal obligations and rights.

4. Read your lease.

While this may sound obvious, many people make the mistake of not reading their lease and familiarizing themselves with the terms. Better yet, have a real estate attorney review the fine print and clauses for any potential problems.

5. Negotiate for favorable clauses.

If there will be additional costs incurred to fit out the space to your specifications, you can negotiate with the landlord to assume those costs and do the work for you. If your business is dependent on an existing anchor tenant, you can protect yourself with a co-tenancy clause that allows you to break your lease if that anchor tenant leaves. You may also want to negotiate for a subleasing clause that will allow you to sublet the space if your business has to relocate or closes.

6. Pay attention to default and termination clauses.

Pay special attention to clauses pertaining to default and termination of the lease. You want to have a clause that allows you to cure a default prior to eviction, especially one that allows you to pay any arrearage to avoid eviction instead of having to pay the entire amount owed on the lease.

Jurado & Farshchian, P.L. assists both tenants and landlords with commercial real estate transactions and questions. Please call one of our experienced real estate attorneys at (305) 921-0440, or email us at info@jflawfirm.com today.

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