When you lease commercial office space, the process included negotiating with the property owner to establish what will be contained in your lease. Having a basic knowledge of the pitfalls to avoid and the opportunities to save money will make the task much less arduous for you and your tenant representative.
While landlords are reticent to lower rental rates, stating that the property is valued high and has a high level of prestige, there are other costs embedded in the lease that are open for negotiations. Include a well-qualified tenant representative in all phases of negotiations. In fact, the tenant rep may be the person who located the perfect property for you.
Once you’ve located the perfect office space, the tenant rep will send the landlord a letter of intent. This is a non-binding statement that tells the landlord what space you want to rent and how much you want to pay. While other elements are included in this letter, they are all open to negotiation. This letter may end up being revised several times after going back and forth with the landlord to reach an acceptable agreement.
Lease Term: The length of time you wish to lease the office space can be anywhere from one year to a decade or more. The basic lease probably states a specific lease term, perhaps five years, but you can required that period be changed to suit your needs. If you are planning to do a lot of improvement to the property, you may want a long lease, whereas if you are a growing company, you may want a much shorter lease to allow you to readily move into larger office spaces if needed in a few years. Be sure the terms regarding lease renewal are also clearly stated.
Beginning Lease Date: Sometimes commercial office space requires major construction or tenant improvements before you move in and begin doing business from that location. Be sure that you don’t have to begin paying rent until you occupy the space.
Percentage Rent: Some leases contain a clause regarding percentage rent, meaning that once a business opens and their sales reach a specified point, a percentage of the gross sales go to the landlord, increasing the overall cost of rental. Depending on the type of business you operate, you may wish to ask your tenant rep to help you negotiate this clause out of the lease or at least make sure that you will have met the specified goal for 12 months before paying any percentage charge. This clause is more likely to impact retail businesses and service or manufacturing operations.
Rental Incentives: Some commercial office spaces offer rental incentives such as one or more months rent free upon signing a lease of a specific duration. Even if no rental incentives are advertised in the office space listing, you may be able to negotiate some incentive by simply asking the landlord. If the building is completely occupied except the space you are considering leasing, then it is less likely that the landlord will give this concession, but if the building needs occupants, the landlord may be very flexible about offering incentives to establish you business in that location.
Tenant Improvements: Another concession sometimes offered by a landlord to new tents is an allowance to make changes to the office space layout. Your tenant rep will be a big help in negotiating changes to the office space. Perhaps you want interior upgrades, parking lot improvements, or other changes, you want to include these requests in your letter of intent and discuss them at length with the landlord. You may find that the landlord will pay for all improvements in order to get a long term lease established. The landlord might give you an allowance and ask that you bear part of the expense; this makes negotiating this area particularly sensitive because you want to get the improvements at little or no cost to you. If there are no improvements needed, use this fact to help negotiate a period of free rent instead.
Exclusivity Clause: Some types of businesses find it important to avoid having a competing business in the same area as their operation. You may negotiate with the landlord to guarantee that a business of the same type as yours will not be allowed to rent in the same building. If the landlord owns a large area of building near your office, you may even be able to establish that no competing business will be allowed to rent from the landlord in a specific radius. This often applies to businesses that sell specific services or provide retail products.
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By: James Osgood
Lease Negotiations , Office Rental , Office Space Negotiations