It pays to negotiate your commercial lease

PBN Staff

04/30/2011

For many business owners, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While an entrepreneur thinks of marketing, managing and even accounting, savvy real estate agents and brokers are specialized salespeople. Their job is to sell tenants on leasing their location at the highest possible rental rate. Real estate agents/brokers actually earn a commission from landlords for completed lease deals … the more rent you pay and the longer lease term you agree to can substantially increase an agent’s/broker’s earning potential.
Business tenants may go through the leasing process once or twice in their entire lifetime – yet they have to negotiate against seasoned professionals who negotiate leases every day for a living.
Whether you are an established entrepreneur and negotiating a lease renewal or leasing a new location for the first time for your business, these are some tips for tenants:
&#8226 Negotiate to win. All too frequently, tenants enter into lease negotiations unprepared and don’t even try winning the negotiations. … With big commissions at stake, you can be sure the landlord’s agent, on the other hand, is negotiating fiercely to win. Tenants should remember that it is okay to negotiate aggressively.
&#8226 Be prepared to walk away. Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. While many businesses rely on a good location to attract customers, off-premises caterers may or may not offer a retail component. If you are in such a position, then site selection is not as critical and you can choose a cheaper location.
&#8226 Ask the right questions. Gathering information about what other tenants are paying for rent or what incentives they received will position you to get a better deal. Consider that your landlord and his agent know what every other tenant on the property is paying in rent, so you must do your homework too. &#8226 Brokers … friend or foe? I must stress again that real estate agents and brokers typically work for the landlord who is paying their commission. It is not normally the agent’s role to get the tenant the best deal – it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more commission the agent earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent’s listing.
&#8226 Never Accept the First Offer. Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent’s first offer. In the real estate industry, most things are negotiable and the landlord fully expects you to counter-offer.
&#8226 Ask for more than you want. If you want three months free rent, then ask for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer. Don’t be afraid of hearing “no” from the landlord – counter-offers are all part of the game.
&#8226 Negotiate the deposit. Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable and, more so than anything else, often serve to compensate the landlord for the real estate commissions he will be paying out to the Realtor. &#8226 Measure your space. Tenants frequently pay for phantom space. Most tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says.
&#8226 Negotiate, negotiate. The leasing process is just that – a process, not an event. The more time you, the catering tenant, have to put the deal together and make counter-offers, the better the chance you have of getting what you really want. Too often, tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time.
&#8226 Pursue site-selection opportunities before signing a franchise agreement. If you are buying a franchise, ensure there will be a suitable location for you to operate from (that you can afford). Many franchise agreements stipulate a deadline date where you must open your business by. If you cannot locate a suitable space by this stated time, however, you may remain responsible to do so and settle for something that will not work for your needs.
&#8226 Educate yourself and get help. Unless you have money to throw away, it pays to educate yourself. Taking the time to read about the subject or listen in on a webinar will make a difference. And, don`t forget to have your lease documents professionally reviewed before you sign them. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can’t afford to gamble. In leasing, tenants don`t get what they deserve, they get what they negotiate. &#8226

Dale Willerton is a lease consultant who works exclusively for tenants. He can be reached by email at
dalewillerton@theleasecoach.com.

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