Commercial real estate tenants are accustomed to keeping an eye on their bottom line. Whether it’s in agreeing on contractual terms with vendors or managing their operational expenses, avoiding hidden costs and unfavorable outcomes is key to their profitability and success in the long term.
The same scrutiny should also be applied to choosing the right commercial space to operate from. Not only should it meet their business requirements but it should also be cost-effective and support their medium to long term plans.
In this article, we offer practical advice to help commercial tenants navigate negotiations to secure the most favorable lease terms, supporting them in their business needs and objectives.
Review Business Requirements
Before negotiating the terms of a commercial lease, tenants should review their business requirements, allowing them to choose a space that is suitable for their needs. Key areas to consider should include the length of the lease term, available rental budget, and current space requirements, alongside potential expansion plans.
Tenants should also consider the configuration of the space and its amenities to assess whether any renovations or refits are required to optimize it for its function. By assessing these matters commercial tenants can search for premises that align with their specific requirements and business needs.
Consider Renovations and Repairs
In many cases, renovation work is required to make a premises fit for purpose. In addition to ensuring that the lease permits such alterations to be made, tenants should also look to be reimbursed by the landlord or commercial real estate asset management company for their costs. This can act as an incentive for tenants to occupy premises and may entail a partial or full reimbursement or, alternatively, an agreement to reduce the rent paid.
By arranging an independent survey of the property before signing the lease, tenants can also get a fair appraisal of potential repairs required and their associated costs. These items can then be raised in negotiations, arriving at a fair allocation of responsibilities between the landlord and tenant.
Review Incidental Costs
Factoring in incidental costs in addition to the rent will give a clear indication of the overall financial outlay required when renting a commercial space. This may include things like common area maintenance (CAM) fees, utilities, and property taxes.
To ensure a fair and affordable outcome tenants should seek clarification on their financial obligations and where possible, look to share these costs with the landlord. Additionally, setting limits on annual increases can provide commercial tenants with greater financial stability throughout the duration of the lease.
Look for Concessions
Commercial tenants should also seek certain concessions when negotiating a lease. These inducements can make it more favorable for them to enter into the lease and include terms such as a rent abatement during renovations or refurbishment, reduced security deposit, or reimbursement for moving expenses.
Commercial landlords are typically open to offering concessions in cases where a commercial property has been vacant for some time or where they realize the value the tenant will bring to their investment.
Considering these points during negotiations can ensure an outcome that aligns with the overall financial interest and business goals of commercial tenants.
