This concise guide outlines how to approach the leasing process to expand your property portfolio into commercial real estate.
The most common form of investment when people think about real estate is residential. This is by far the best option for many first-time investors. It requires a great deal less understanding of the typical legal jargon and rules behind it all, not to mention that it’s pretty easy to find new tenants.
Residential tenancies are generally fairly short, rarely more than a few years, so there are almost always new tenants popping up looking for a property. But if you wanted to take your career in real estate to the next level then you might want to start looking into commercial properties.
Commercial real estate can be a fantastic way to expand and improve on your growing property empire. Of course, that doesn’t mean that it’s right for everyone and it certainly comes with its fair share of challenges. With that in mind, here are some important things to consider when negotiating a lease.
When it comes to finding a space for your business to operate, commercial leases are not something we naturally understand. It’s often not until you become a successful business owner and decide to lease an office or retail space that you realize the importance of knowing the small details. The more you learn about commercial leases, the more you may also come to understand that there’s often room for negotiation. The following information may just help you with your next successful negotiation.
Conduct a Commercial Lease Audit
While not technically a commercial lease negotiation tactic, learning how to audit a commercial lease can help you save money on your current lease – particularly if you don’t believe your landlord is doing right by you.
A commercial lease audit involves calculating the amount of space you lease, understanding the area’s rental rates, and analyzing the rent amount, sub-leasing permissions, and extension or expansion options. There can be a lot involved in the auditing process, so it may be worth hiring an expert to help with this process. You may then be able to negotiate a cheaper lease amount based on your findings.
Put In a Counter Offer
You’re in business to make money, so you’ve probably already got some excellent money-saving measures you utilize every day. Surprisingly, you may be able to save money before you even sign on your commercial lease’s dotted line. The advertised rate is rarely ever what you have to pay. Instead, many commercial building owners know that business owners will likely haggle, and they inflate the price and terms with this in mind.
When you find the perfect commercial property for your business, consider putting in a counteroffer. You may be able to save a percentage of money or negotiate free rent periods for each year of your lease.
Detail Expected Improvements
Business owners often include the property’s condition in their negotiations. You may be willing to accept a space ‘as is,’ or you might wish to ask for improvements beforehand. If you plan on making changes yourself, outline what these are, as your landlord may offer an incentive or allowance based on the renovations or improvements you wish to make.
Negotiate Occupancy vs. Rent Date
You may be surprised at how straightforward it can be to receive a month of free rent just by negotiating your occupancy date and rent date. For example, you can ask to take physical possession of unoccupied commercial space at the very start of a month. You may then ask if your rent date can commence at the beginning of the following month. Not all landlords will accept your negotiation terms, but those eager to fill their commercial space may be more inclined to negotiate than others.
Focus On the Lease Length
How each landlord structures their lease lengths can differ. You may have found the ideal office space, but you may not be thrilled with the prospect of a five-year lease with no renewal options. Even if you don’t typically feel confident to negotiate, there’s value in coming up with a lease structure that works for you. Ask about the option of one-year renewals, just in case your business outgrows the space.
Negotiating a commercial lease may be outside your comfort zone, whether you hire a lawyer or manage it yourself. However, it can be a necessary part of making sure you’re entirely happy with the agreement you’re signing.
