A commercial lease can be one of your most important Franchised Business assets and one of the biggest Franchised Business expenditures. Look beyond the amount that you pay in rent and make sure that you are getting the best deal possible. Below are some tips to negotiating a commercial lease.
Negotiate shorter terms with options to renewal: Short lease terms offer flexibility for the ever changing market place. Ask for an initial term as short as 6 months. If the space is not working for your business. you will not be stuck in a long term commitment with the landlord.
Negotiate multiple renewal options. Options to renew allow you to capitalize on the bargaining position that you have when you first entered into a lease. The landlord is most negotiable when you are negotiating the initial lease. Once you are in the space, the landlord knows that relocating costs you money and most likely, you have built up a business presence at the current lease space. When negotiating the option to renew, establish the rent amount. If the options carry a variable rent increase, such as the change in CPI, put a cap on the percentage increases.
Put a cap on CAM charges. CAM charges are based on your percentage of space compared to the whole building. CAM or Common Area Maintenance fees are amounts paid for such things as landscaping, electricity in the common areas, and snow removal in the parking lot. CAM charges can add up; limit your exposure. Negotiate a cap on the CAM charges. Measure your space to ensure that your percentage is correct. Also include a clause in the lease that allows you to audit the CAM charges.
Negotiate an out if the anchor tenant leaves or there is a high rate of vacancies: Sometimes the appeal of the lease space is based on the presence of a big box store in the shopping complex or the vibrancy of the shopping center as a whole. Customer traffic will decrease if the big box leaves or there are a lot of vacant store fronts. Negotiate for your ability to terminate the lease if the anchor tenant leaves or there is a high rate of vacancies in the shopping complex.
Negotiate leasehold improvements. When entering into a lease, look around the space to negotiate any upgrades, remodels, or repairs that you want done to the space as part of the lease negotiation. This can make a big difference in the consumer experience of your business.
Negotiate a one year warranty on equipment and fixtures: If equipment and fixtures are included as part of the rent, make sure to get the benefit of the bargain. Ask the landlord to guaranty their operability and functionality for at least 1 year and longer if possible.
Limit or eliminate percentage rent: Percentage rate is the landlord’s way of sharing in your success. Try to limit, cap, or eliminate percentage rent. Profit margins on many products and services are slim. Negotiate a cap or limit percentage rent to only higher profit margin products.
Negotiate an exclusivity clause: There is enough competition in the market. You do not want your competition next door. Negotiate an exclusivity clause, which prohibits your landlord from renting to another business that sells the same products or services that you do.
Negotiate for your ability to assign: Keep your exit strategy open. If you decide to sell your business, your business’s value will be considerably compromised if the buyer cannot assume your lease. If you decide to exit the space, you may be stuck with the lease. Having the ability to assign the lease gives you the latitude in marketing the space to a third party. Along with this, you want the stated purpose of the lease as broad as possible. Often times the lease will state what the space will be used for, i.e. a book store. Don’t limit the use of the space.
Yes, we can help you negotiate your lease and help you understand the lease you are signing!
Contact Gettins’ Law, LLC at 513-400-3895 or by email at firstname.lastname@example.org