A commercial lease is an important part of your business operations — favorable terms on such a lease will put your company in a better position to succeed. Leases are almost always prepared by a landlord in a way that favors the landlord, but that doesn’t mean the terms of that lease are completely non-negotiable.
With this in mind, here are some tips to help you negotiate a commercial lease that can benefit you, and not just the property owner.
Look into what other businesses pay in rent for comparable properties
The amount of rent you pay is a compelling factor in your ability to be profitable and increase your margins on an ongoing basis. For this reason, you should do plenty of research into what other businesses pay in rent for similar properties in your area.
A portion of your rent negotiations should include future rent increases. Landlords often like to increase rent for every additional year of the lease term. To keep your rent affordable, it is useful to discuss these increases at the outset of the agreement and work out a cap on these increases. You can also negotiate the amount of your security deposit and other lease terms.
Uncover hidden costs and negotiate them
Are all costs included in your rent, or are there extra costs that you will have to pay in addition to your rent? The terms of your lease may, for example, make you responsible for maintenance or upkeep of common areas on the property. Be sure to get information about all these potential costs up front, and to negotiate these terms so they are as favorable for you as possible.
Less-obvious hidden costs might arise in the context of extra costs that you will have to incur due to the nature of the property itself. Will the location or condition of the property increase the cost of obtaining an affordable commercial liability insurance policy for your business? Is the property a historic building with uneven floors, steps, and door thresholds? Does the property have vulnerabilities that will require you to pay for extra security? Will you have to install more advanced networking infrastructure to handle the telecommunication needs of your business? These considerations can be part of your negotiations, either to lower your rent or secure the landlord’s commitment to address your needs (thereby lowering operating costs that you would have incurred elsewhere).
Finally, if a commercial space is too big for your current needs, consider asking the landlord to loosen or waive any restrictions on subletting. The additional rent from a sublessor can be applied to a lease payment that might otherwise be too steep for you.
Consider the length of the lease
One of the first issues you should discuss with the property owner is the length of the lease. Generally, a small business that is just starting out should aim for a one – or two-year lease with an option to renew. This will prevent you from being tied down for too long in the early phases of your business, but it still gives you an option to stay in the same location if you choose. Shorter leases are also better if you think you can find a comparable location without too much trouble in the event this particular arrangement does not work out.
There are some businesses, however, that are extremely location-dependent, such as restaurants or bars. In those cases, a longer lease term can offer more stability.
Consider the termination clause for your lease
Finally, make sure you carefully read what the lease says about terminating the agreement. Note the provisions that set the number of days from the end of the lease (e.g. 30 days, 60 days, etc.) before which you must give notice of your intent either to vacate the property or to extend the lease. Also note the due date for rent payments and negotiate any grace period that suits your cash flow. You should ideally have a clause in place that gives you sufficient time to cure a default before the landlord can initiate eviction proceedings for delinquent rent. You should also seek to negotiate penalties that the lease has in place for early termination if you decide to leave before the lease expires.
For more information about negotiating your business’s commercial lease, contact an experienced real estate attorney at BoltNagi PC in the U.S. Virgin Islands.
BoltNagi is a well-established and widely respected business and commercial law firm proudly serving clients in the U.S. Virgin Islands.