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4 Parts of a Commercial Property Lease You Ought to Negotiate

man signing document

Negotiating a commercial property lease is a process you should be careful about as each party in the deal will try to get the best deal. The landlord or property owner is usually the first to offer their specific terms, but the terms are always open to change. As a tenant, you should always be ready to fight for what you want, stay firm, and get the better out of the negotiations.

Be aware that any legally irrevocable agreement, like the lease, ought to be prepared, negotiated, and reviewed by a professional like a Rochester New York realtor or an attorney. Even when you hire help with the lease, always be aware of your rights. Below is a list of the most important elements in a commercial property lease you should always negotiate.

Rent Payment Terms

This first and last thing will affect your business’ bottom line, so it should be the first and last negotiating item of any commercial property lease. Rental rate is a listing that provides a starting point for your negotiations, and it’s not set in stone. Some of the things that are likely to affect whether the property owner will lower their price include the current market vacancy, owner’s current financial situation, and the asset’s physical health.

If a commercial property has been on the market for a long time, you’ll get more room to negotiate. Every month an asset sits empty, the landlord gets no income and with passing months, this adds up and the landlord will likely be willing to do anything to fill up the space – including lowering the rental price.

Even if the landlord refuses your request for a lower rent rate, you can still negotiate on when you should start paying rent. It does not have to be the date when you move into the space. Many property owners are willing to defer or waive rent during the build-out periods or until the tenant actually opens the business to the public.

The Break Clause

Break clause helps mitigate landlord and tenant risk. The clause allows a tenant to completely break or leave the lease. Here, you can negotiate a one-time exit strategy tied to certain terms, in most cases time period and revenue; for example, if within Y days you have not realized Y% in sales, you can cancel the lease.

The Subletting Clause

No single individual or company can accurately predict the future. Just like no tenant will sign a 5-year commercial property lease when they know they will close the business within 2, they also cannot predict or know when a natural disaster is likely to strike. To mitigate risk, you can always negotiate to have a subletting clause added into the lease; meaning that in case you cannot afford to use the space, you can sublet it to someone who can.

Type of Commercial Lease

There are different flavors of commercial property leases, and several abbreviations that differ in usage and meaning, depending on who’s using them. When dealing with commercial leases, the basic structures address what you, as the tenant, are responsible for paying. Modified Gross and Full Service leases are the most common for multi-tenant buildings.

These types of leases have rent that does not increase as operating expenses increase; however, the rent will not decrease with reduced operating expenses. The biggest difference between these types of leases boils down to the meaning of gross in the agreement – different leases will either include or exclude some operating costs like janitorial services. The base rent is derived from a formula that determines the cost and types of operating expenses the tenant has to cover over the lease’s term.