Close

Demetree Real Estate Blog

4 Things to Ask When Negotiating a Lease

[fa icon="calendar"] 08.30.2016 / by Rory Williams

 

Commercial leasing terms can be complicated and take some time to wrap your head around. Before going into negotiations with the building owner, you’ll want to arm yourself with plenty of knowledge to make sure you are protecting your interests.

Here are a few questions you can ask your tentative landlord:

1. How Long Will the Lease Run?

You need to know exactly when the lease will begin so you can determine when it will end. It should also clearly spell out what will happen if your space isn’t ready by the agreed upon move-in date and what type of rent adjustments will be made.

Watch out for any clauses that will allow your landlord to put you in an “alternative” space if the new premises are not ready on time. This just means you’ll have to move everything twice which is both annoying and expensive. Be sure to give yourself some leeway in moving out of you current space if you think there might be a problem getting into your new space on time.

2. What Concessions Will the Landlord Provide?

Opening a new location can be expensive. You will have to consider the upfront costs for preparing the space for your business. Does the current floorplan have any functional issues?

Will you need additional electrical, or restrooms? You may need to request the landlord provide some of these changes so the space will work for you.

You will also want to make sure you are able to negotiate a free rent period. This will give you time to get the business setup and help you offset some of your marketing expenses.

3. How Much Will the Rent Go Up?

Rent costs these days are so unpredictable that most landlords have starting protecting themselves with escalation clauses – even with short term leases – so renters need to be aware of the different types of escalation clauses they might encounter:

  • One type of clause builds in regular increases over the course of the lease while others will prorate increases in taxes, heat, maintenance, and other operating costs.
  • Another type of escalation clause will automatically raise your rent according to the Consumer Price Index (CPI). However, this is generally not favorable for tenants as the CPI commonly overcompensates for inflation costs.

Be extra careful if you move into a new building that hasn’t reached full capacity. This means the owner probably doesn’t a stable history of operating costs to use as a base.

4. What Happens if Your Landlord Goes Broke?

If your landlord goes broke and loses the property during the term of your lease, you could be out of luck. Oftentimes the new building owner will increase the rent or give you 30 days to vacate the premises.

You can protect yourself by making sure your lease has a standard “recognition” or “non-disturbance” clause. If your landlord gives you a funny look, this could be a red flag.

5. Who Else Can Move In?

Be sure to discuss this with your landlord before signing a lease. For example, it could be bad for business if a competitor moved into the same building or if someone who produced strange odors or loud noises moved into the unit next door.

While zoning laws do protect businesses from these kinds of problems to an extent, you can still negotiate stricter limits if this is a major concern of yours.

Protect Your Interests

Landlords may be eager to fill empty spaces, but that doesn’t mean they are eager to give you a deal. You may find out that your lease is full of hidden clauses and extra charges that were not discussed. Follow these tips to help protect your interests and make sure you aren't getting a bad deal.

3_Key_Areas_Where_a_Property_Manager_Can_Help_You

Topics: Leasing

Rory Williams

Written by Rory Williams

Rory is the managing partner of Demetree Real Estate Services, a diversified real estate organization focused on investment, development and real estate services. He has experience running the operations of a private real estate portfolio with 5MM square feet and operations in 8 states.