You’ve found the perfect location for your business and are ready to sign the lease. However, before you do so, it’s important to understand the terms and conditions of your commercial lease agreement. Commercial lease negotiations can be complex, but they’re critical to ensuring that you get the best deal for your business.
Here are some key factors to consider when negotiating your commercial lease agreement:
- Tenant Improvement Allowance. When renting commercial property, landlords will often offer tenants an allowance to help cover the cost of making necessary improvements to the space. This can include painting, installing new carpet, or building out walls. When negotiating your lease, make sure to discuss the amount of the allowance and what specific improvements it can be used for.
- Rent Escalation Clauses. Rent escalation clauses are provisions in your lease agreement that outline how your rent will increase over time. These clauses can be fixed or variable and can greatly impact your business’s financial stability. Be sure to negotiate these clauses to ensure that they are fair and manageable for your budget.
- Lease Termination Options. Life is unpredictable, and sometimes circumstances change. Make sure that you have the option to terminate your lease if necessary. Negotiate lease termination clauses to give yourself flexibility in the event that you need to move your business to a different location.
- Assignment and Subletting. If you need to sublet or assign your space, ensure that you have the right to do so. Discuss these options with your landlord and negotiate terms that allow for flexibility and easy transitions.
- Security Deposit. A security deposit is an amount of money paid to the landlord to cover any damages to the property or unpaid rent. Make sure that the amount of the security deposit is reasonable and negotiate the terms of the deposit’s return at the end of your lease.
- Operating Expenses and Common Area Maintenance (CAM) Charges. Make sure that you understand any additional fees or charges that you will be responsible for paying, such as common area maintenance charges or operating expenses. Negotiate these charges to ensure that they are fair and accurately reflect the services provided.
- Lease Renewal Options. If you are happy with your location and want to stay beyond the initial lease term, negotiate renewal options with your landlord. This can save you time and money in the long run.
- Landlord Default Provisions. Make sure that your lease agreement includes provisions for landlord defaults. These provisions will outline what happens if the landlord breaches the terms of the lease agreement.
- Force Majeure Clauses. Unexpected events, such as natural disasters or pandemics, can impact your business’s ability to operate. Negotiate force majeure clauses that outline what happens in the event of unforeseeable circumstances beyond your control.
- Exclusivity Clauses. Ensure that you have exclusivity rights to your location. Negotiate exclusivity clauses that prevent your landlord from leasing space to a competitor.
- Permitted Use Provisions. Make sure that your lease agreement includes provisions outlining what your space can and cannot be used for. Negotiate these provisions to ensure that they align with your business’s goals and needs.
- Alterations and Improvements Provisions. If you plan on making any alterations or improvements to your space, make sure that you have the right to do so. Negotiate these provisions to ensure that you have flexibility in making necessary changes to your business.
- Rent Abatement and/or Deferral Provisions. In the event of unforeseeable circumstances that impact your business’s ability to operate, negotiate rent abatement or deferral provisions. These provisions can provide much-needed financial relief during difficult times.
- Tenant Options to Purchase or Right of First Refusal. If you plan on staying in your location long-term, negotiate tenant options to purchase the property or right of first refusal if the landlord decides to sell the property.