A commercial lease is an important component of your business and can be a significant overhead expense. When negotiating a lease, you want to ensure that your interests are protected, so you can focus on conducting your business with peace of mind. Commercial lease agreements are prepared by the landlord and for the benefit of the landlord. It is your responsibility to read it completely, ensure that you understand your rights and obligations, and negotiate modifications that will favor you as the tenant. Below are a few tips for negotiating your lease.
Negotiating Commercial Lease Agreements
Time Is Ticking
Negotiation is seldom a quick process and is likely to take longer than you anticipate. Therefore, surveying available rental space as early as possible will allow you the time to fully negotiate your lease. Engaging an experienced real estate professional at the outset will give you a leg up in your negotiations, as they will be able to ensure that you are getting a fair price for the space on fair terms.
Diligently Prepare Pre-Negotiation
When negotiating a lease, the landlord is likely to request your financials. This provides the landlord with a better understanding of who they are leasing to and allows the landlord to assess the risks, if any. Landlords’ willingness to provide improvements or an allowance is typically based on the tenant’s financial strength. Having your financials prepared will help aid in the process of moving the negotiations along and closer to the goal of lease execution.
You’ve Found a Space, Now What?
Once you have located a rental space and completed the application process, the landlord will either present you with a draft lease or a letter of intent (a “LOI”). A LOI is a document that outlines the material business terms (e.g., term, renewal terms, rent, common area maintenance charges, etc.) agreed to between the parties before a formal lease is drafted. Using a LOI helps guide the process of negotiating the lease and can help save you time (and money) and ensure you and the landlord are in agreement with the material business terms prior to drafting the lease. It is always recommended to seek legal advice before signing a lease.
Negotiate Your Way to Greater Flexibility
Depending on the longevity of your business and confidence in future growth, you should address these concerns during the negotiating process of the lease. Adding adaptive clauses such as an early termination right to protect you from unforeseen events or rights of first refusal will allow you to expand into contiguous space to address future growth.
Personal Guaranty
Often times a landlord will require you to sign a personal guaranty, particularly when leasing to a tenant without sizable assets or an established operating history. A lease guaranty provides landlords with additional security and requires the personal guarantor (usually a principal or principals of the tenant) to put his/her personal assets on the line should the tenant default in its obligations under the lease (e.g., payment of rent or other expenses) or go bankrupt. The Guaranty should always be addressed in the LOI, as this can be a deal-breaker for the landlord or tenant.
Confirm your Commitment
Before you sign the final lease, make sure to review the material terms of the lease to confirm they are accurate (e.g., rent calculations, term, common area maintenance caps, renewal terms, etc.).
Arm Yourself With Knowledge
As with any situation, knowledge is power when it comes to negotiating commercial lease agreements. Understanding how the commercial real estate market in your area operates puts you in a position of power during the negotiation process. This is especially true in our post-COVID-19 environment.
Get Reinforcements
Leasing commercial property can be complicated and these are just a few “big picture” tips to prepare you for the initial process of negotiating a lease. If you are thinking of leasing commercial property, engaging an experienced real estate attorney at the outset can provide you peace of mind. You can relax knowing that you have a professional working on your behalf and looking out for your interests to minimize your risk and maximize the positive outcome for your business.
Ringenberg-Rattner Law
The attorneys at Ringenberg & Rattner Law are here to help. Real Estate Law is the cornerstone of our firm. Our attorneys have the experience and background needed to assist you in all types of commercial leasing transactions. We would love to hear from you today! Contact our experienced team of lawyers in Omaha today to schedule a consultation. Our areas of practice include real estate, business, and banking.
