5 Practical Tips for Negotiating a Favourable Commercial Lease

So you need a place to operate your business, but due to lack of finances, you are unable to purchase one.

That’s fine; you can occupy a property under a commercial lease as well.

In fact, if you are a start-up, commercial lease would be a much better option for you than purchasing a real estate property. You can do that latter once your business establishes.

That been said, acquiring a commercial lease is not easy.

Not because landlords willing to rent out their property are hard to come by – you have plenty of options – but negotiating a lease that is favourable for you is where lies the tricky part. Your potential landlord would like the deal to be in his favour and this is where you need to strike a balance – get the best deal for you and yet leave your landlord with no complaints.

However, you don’t have to worry about anything of the sort. We’ve compiled 5 practical tips to negotiate a favourable commercial lease.

Tip #1: Conduct Market Research

Call multiple landlords in the area and schedule an appointment with them.

Make sure the meeting place is the property itself so that you can assess the real estate. Visit the property and ask for a quote. This will help you to establish a fair idea of the rent market.

Next up, negotiations. If they’re quoting you above the market rate, ask for a reason. You’ve visited other properties so you know if the landlord’s demand is reasonable.

If there is room for negotiations, don’t be afraid to play hardball.

Tip #2: Find Out Who You Are Dealing With

Some landlords market their property for rent through a broker or a property management company. Services like these may include their fee in the rent quoted. Always know who you are dealing with. Ask upfront. It’s your right to know.

Tip #3: Always Include an Exit Clause

An exit clause allows you to exit from a lease agreement before the expiry of lease term.

If not included in the agreement, you are leaving yourself vulnerable. A situation might arise where you may need to move to another location or shut down your business, but the legal obligations of the agreement won’t let you do so.  You will have to pay the rent for the remaining term.

Tip #4: Include a Sublet Clause

A sublet clause basically grants you the right to sub-lease the commercial property to another tenant. Look at it from business point of view. In future, you may find that the space you have rented is being underutilised. You could rent a portion of it to someone else and share the rent expense. However, not every landlord may agree to include a sublet clause in the lease agreement. Try convincing the other party but you don’t have to force it.

Tip #5: Set the Terms Clear for Property Maintenance Charges

Property maintenance charges include the expenses incurred during repair works and property improvement jobs. Though the landlord expects you to pay for property maintenance charges, you don’t necessarily have to pay for every type of repair work.

For example, it could be that the foundations of the property are weak. This is something hard to determine when inspecting the property at the time of a visit.

Agreeing to pay for any such potential repair work could be business suicide. Hence, set the terms clear with your to-be-landlord. Clearly differentiate between the expenses you both are liable to pay.

Follow these tips, and you can increase your chances of securing a great business deal for yourself.

A BONUS read: What to Keep in Mind When Signing a Commercial Lease