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Negotiating a commercial lease: expert tips and tricks

Tillie Demetriou
6 Jan 2023

In this complete guide, we'll be sharing expert tips and tricks for negotiating a commercial space lease successfully. We'll cover everything from understanding the lease process and preparing for negotiations, to making the first offer and handling disputes. 

By the end of this guide, you'll better understand the ins and outs of negotiating a commercial space lease and feel more confident in your ability to secure the best deal for your business. So, let's dive in and start negotiating a commercial space lease like a pro!

What is a commercial lease?

A commercial lease is a formal agreement between a business and the owner of a commercial property. This document outlines the rights and responsibilities of both parties, including the length of time and terms of use for the leased space. It also includes clauses that detail payment amounts, maintenance requirements, and other conditions of the rental agreement.

For example, a common commercial lease clause may require the tenant to pay rent and additional charges such as property taxes, fees for necessary repairs or maintenance of the premises, insurance premiums, and utilities.

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Types of leases

Before we dive into tips and tricks on negotiating a commercial lease, it's important to understand the different types of leases. There are many different types of commercial leases that you can choose from. These include a gross lease, net lease, modified gross lease, double net lease, triple net lease, and absolute net lease. Letโ€™s go through the differences between these leases:

Gross lease agreement

A gross lease is when a tenant pays one fixed amount to their landlord in exchange for the use of the property. Within this type of lease, the landlord (or property owner) is responsible for all of the costs associated with maintaining and operating the property.

Net lease agreement

A net lease is when the tenant pays a fixed rental rate plus additional costs associated with operating and maintaining the property. These additional costs could include taxes, insurance, and other expenses.

Modified gross lease agreement

A modified gross lease combines a gross lease and a net lease. In this type of lease agreement, the tenant pays a fixed rental rate plus some of the costs associated with operating and maintaining the property.

Double net lease

Double net leases are when a tenant pays a fixed rental rate plus two expenses associated with operating and maintaining the property. In this type of lease agreement, the tenant is typically responsible for property taxes and insurance expenses incurred by the landlord or property owner.

Triple net lease agreement

A triple net lease is when the tenant pays a fixed rental rate and their portion of all operating expenses, property taxes, insurance, and other expenses related to the property. This type of agreement places more of a financial burden on the tenant.

Absolute net lease agreement

An absolute net lease is similar to a triple net lease. However, this type of agreement burdens the tenant as they are responsible for all operating expenses, taxes, and insurance related to the property.

Commercial retail lease vs commercial hospitality lease

Commercial retail leases and commercial hospitality leases are two of the most common types of commercial leases. 

A commercial retail lease is a contract between a business and a landlord for commercial space intended to be used for retail purposes. This type of space can include stores, boutiques, restaurants, or any other type of business where goods or services are sold.

In comparison, a commercial hospitality lease is a contract for a commercial space that is intended for hospitality purposes. This includes restaurants, cafes, and other such businesses. 

TIP: Check out our Restaurant POS system or Hospitality POS system for your commercial space to ensure the highest level of customer experience.

Now that you know all about the different types of commercial leases, let's move on to the negotiation process.

Preparing to negotiate a commercial lease

Now that you better understand the different types of commercial leases, it's time to start preparing for negotiations. This can be a lengthy and complex process, so you want to make sure that you're adequately prepared before you begin.

Step 1: Understand the market

The first step in preparing for negotiations is to thoroughly research the local real estate market. Understanding what similar properties are renting for and how long they're staying on the market will give you a better idea of what type of offer you should make.

Step 2: Determine your needs and wants

The second step is to determine your needs and wants when it comes to the commercial space lease. You should make sure that you have a clear understanding of what type of space you need, what amenities are important to you, and any other things that would impact your decision-making process.

Step 3: Speak to a team of professionals

It's a good idea to speak to a team of professionals before you start negotiations. These professionals could include an attorney, a real estate broker or agent, and even an accountant to help you understand the financial implications of signing a commercial lease agreement.

Step 4: Create an offer strategy

The fourth step is to create an offer strategy. You want to ensure that you offer a fair price that makes sense for both yourself and the landlord or owner. You should always ensure that your offer is in line with what other commercial spaces in the area are renting for, and you should also consider any additional costs associated with operating and maintaining the property.

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Tips and tricks to negotiate a commercial lease

When it comes to negotiating a commercial lease, it's important to have a solid understanding of the key terms and concepts, as well as a strategy for handling disputes and roadblocks. In this section, we'll be sharing some expert tips and tricks for navigating the negotiation process and coming out with a lease that is fair and beneficial for both parties. Here's a breakdown of some key considerations to keep in mind:

TIP 1: Understanding the landlord's perspective

It's important to understand where the landlord is coming from and what their priorities and concerns are. This could include things like filling the space quickly, finding a stable tenant, or maintaining the property. 

By understanding their perspective, you'll be better equipped to craft an offer that addresses their needs as well as your own. Knowing the landlord's goals, you can negotiate better terms such as lower rent, longer leases, or other concessions. Additionally, understanding their priorities can help you to structure your offer in a way that is most appealing to them.

TIP 2: Making the first offer

When making the first offer, it's important to be realistic and fair. It's also important to have some flexibility, as the first offer is usually just the starting point for negotiations. Starting low or high can affect the negotiation process and make it more difficult to come to a mutually beneficial agreement. It's important to do your research and come up with an offer that is fair and reasonable for both parties.

TIP 3: Negotiating key lease terms

There are several key lease terms that you'll want to negotiate, such as the rent, length of the lease, and renewals. It's important to understand the implications of each term and to negotiate in a way that is fair and beneficial for both parties. 

For example, a longer lease may be more appealing to the landlord, but a shorter lease may be more beneficial for your business. Additionally, you may want to negotiate options to renew the lease or termination clauses if certain conditions are not met.

TIP 4: Handling disputes and roadblocks

Disputes and roadblocks are a normal part of the negotiation process. It's important to have a plan to handle these situations and remain calm and professional throughout the process. It's also important to be prepared for potential roadblocks.Remember to remain calm, open to compromise, and find a solution that works for both parties.

TIP 5: Knowing your rights and responsibilities

It's important to understand your rights and responsibilities as a tenant and to know what is expected of you in the lease agreement. This includes things like payment terms, maintenance obligations, insurance requirements, and many other details. 

Knowing your rights and responsibilities will help you to negotiate better terms that are beneficial for both parties. Additionally, if there are any provisions in the lease that you don't understand or aren't comfortable with, make sure to bring up these issues during negotiations.

TIP 6: Consider the location and condition of the property

When negotiating a commercial lease, it's important to consider the location and condition of the property. Aspects like parking availability, access to public transportation, and proximity to other businesses can all have an impact on your business. 

Additionally, it's important to consider the condition of the property and any improvements or renovations that may be needed prior to moving in. These are all factors that should be taken into account when negotiating a commercial real estate lease.

TIP 7: Seek expert advice

Negotiating a commercial real estate lease is not something to take lightly โ€“ mistakes can have serious financial implications for your business. It's always best to seek expert advice from an experienced real estate attorney or broker to ensure that you are making the best decisions for your business. They can help you to negotiate better terms and protect your interests throughout the process.

TIP 8: Be prepared to move quickly

Commercial leases move quickly, and it's important to be prepared if you want to get the best deal. Be ready to sign a lease as soon as possible after negotiations are complete. Having all your documents in order and being prepared to act quickly will make the process much smoother.

TIP 9: Be prepared to walk away

Sometimes, no matter how well you have prepared, the negotiations may not go as planned, and the terms of the lease may not be favorable to you. In these cases, it's important to be prepared to walk away from the deal. This doesn't mean that you should be inflexible, but you must be willing to walk away if you can't reach an agreement that is beneficial for your business.

How can a POS system help your commercial business

A POS system, or point of sale system, can be an invaluable tool for managing your commercial business. It provides a streamlined and efficient way to process payments, manage inventory, and track sales. Additionally, a POS system can also integrate with other payment processing services which will make transactions more efficient and secure.

One of the key benefits of a POS system is its ability to streamline payment processing. With a POS system, you can easily accept a wide range of payment methods, including credit and debit cards, e-checks, and mobile wallets, which makes it easier for customers to make purchases. Additionally, a POS system can also offer additional security features, such as EMV compliance and tokenization, to protect your business and your customers against fraud.

A POS system can also help you to manage your inventory more effectively. By tracking sales and inventory levels in real-time, you can easily identify which products are selling well and which ones are not, allowing you to make informed decisions about restocking and pricing. 

In addition, a POS system can also provide valuable insights into your business's performance. With real-time data and reporting, you can easily track sales, identify trends, and make data-driven decisions to improve your business.

Final Thoughts

Navigating the complex process of negotiating a commercial lease can be a daunting task, but with the right approach and a clear understanding of your business needs and priorities, you can increase your chances of success. Whether you're looking to secure a prime location, negotiate favorable lease terms, or ensure that your interests are protected, the key is to be prepared and have a solid plan in place.

As you move through the negotiation process, it's important to remember that it's not just about getting the best deal but also about finding a space that will support the growth and success of your business. This means taking into consideration not only the terms of the lease, but also the location and condition of the property, the parking situation, and the overall market conditions. And most importantly, be prepared to walk away if the lease terms aren't beneficial for your business.

With the right mindset, a strategic approach, and the help of professionals, you'll be able to navigate the complex process of negotiating a commercial lease with confidence and secure a lease that meets the needs of your business. Remember to stay persistent and don't be afraid to be creative, as this will help you to come up with a mutually beneficial agreement. With the right approach, you can secure the perfect space to support your business and set you up for success. Good luck with your negotiations!

Want to know more? Read our additional resources on guidelines on leasing, opening and running a commercial space today!

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