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Negotiating the terms of your commercial lease

| Jul 8, 2020 | Commercial Real Estate |

Opening a new business or moving an existing one to a new location is a significant undertaking. Even for the most focused and attentive California business owner, it is surprisingly easy to look over small but important details in this process. This is why it is important to take the time to thoroughly review one’s commercial lease agreement, and negotiate when necessary.

Commercial tenants often feel at the mercy of landlords, but they have more negotiating power than they think. For example, a property owner who owns a shopping center that is mostly vacant would probably make certain concessions. Negotiating with property owners who own premium space might be more difficult, but it is still possible.

Since the cost of rent is an important factor, a potential tenant may want to try and negotiate for a lower monthly payment. Again, a landlord with a vacant property would be more likely to agree to a lower rent amount. However, there are certain areas which are usually not up for negotiation. These include whether an agreement is a gross lease — the landlord pays for repairs, taxes, insurance and utilities — or a net lease, in which tenants are responsible for these costs.

A tenant who is hoping for lower monthly rent might consider negotiating a longer term. In general, property owners in California prefer to maintain the same tenants over time rather than re-leasing the property over and over. A property owner might be much more willing to agree to lower rent if he or she knows that the property will be leased for a specific length of time. Business owners may want to be cautious when taking this route though, as they will still be responsible for the remainder of the lease — and rent — even if their businesses close.

There are several other details a potential tenant can negotiate in his or her commercial lease. Who pays for improvements, subletting and permitted use are all up for negotiation. Successfully securing one’s desired allowances can be tricky though, especially when landlords already have plenty of experience when it comes to leases. A more effective approach to negotiations might involve seeking guidance from an experienced attorney.