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Can I negotiate the terms of a commercial lease?

9/4/2015 | Real Estate Blog

When shopping around for a commercial space, while cost is often top of mind for many, keep in mind that commercial leases are negotiable. In fact, it’s almost expected that a business will attempt to negotiate before signing anything. For a business owner, this concept is welcoming, as the terms of a lease can have a rather large impact on a business, both now and in the future. 

When it comes to negotiating the terms of a commercial lease, there are three main things a business owner will want to pay close attention to. This includes:

  • Rent and any clause that speaks to how rent will increase over time
  • The length of the lease
  • How improvements will be handled

In looking at rent, keep in mind that the asking price is often negotiable. Market conditions and the location of the property play a large role in the chances a landlord will budge on the price. For example, if the space is in a large, mostly vacant location — that is maybe off the beaten path a little bit — the landlord may be more willing to negotiate, as he or she really just wants to get a tenant in the door. This being said, though, if the space is in very desirable location, the landlord may not be as willing to negotiate. 

There are also different types of terms, which may be a little more set in stone. These terms spell out who is financially responsible for what. For example, some terms may include the landlord paying for everything — utilities, taxes, insurance and repairs — or the terms may break up the costs with the landlord being responsible for paying some of these items, while the tenant pays others. Typically, all-inclusive leases — where the tenant just pays one flat price — tend to be higher.

When negotiating the terms of a lease, also pay careful attention to any annual rent increase clauses. These clauses dictate how rent will go up in the future. Know that these too may be negotiable, in terms of both the increases and any grace periods a business owner may ask for. 

As we mentioned earlier in this post though, rent is just one piece of the lease. Stay tuned, as we will discuss the pros and cons of a long-term lease versus a short-term lease and how future improvements of a space will be handled.