Negotiating Commercial Lease Rate & Terms

Let’s face it, this is the time to negotiate or renegotiate your commercial, retail or industrial lease.  The primary metric motivating landlords is the vacancy factor.  Across the board, from retail to industrial, vacancy rates are high, which means landlords have more and more spaces to fill and keep occupied.  Of course, this is a factor of an economic dip and your business is likely suffering a decrease in revenues from the boom times.  But, you have to take advantage of the market and lock up good terms.

Approaching your landlord can be a challenge due to many factors, including the fact that they may not be reachable or you may have a property manager in the middle.  Perhaps your leased space is owned by an investment group, or an institutional investor.  When this is the case, getting an answer can be a slow and frustrating process.  So you need to gather all of your facts, who are the owners, what is their exit strategy, how much debt do they have on the property.

All of these factors will figure into how to negotiate lease terms.  For example, if the current owners want to exit the property in the short term, then expect that they will want to negotiate a long lease at the best rate possible so the property has a high value to investor buyers.  In this case, you can possibly negotiate some front loaded concessions, so that the current owners will bear the brunt of the concessions in the near term, and reap the benefits in the long term on the sales price of the property.

Examples of front loaded concessions are a period of free rent and a financial contribution to some tenant improvement costs.  If the property owner(s) are planning on keeping the property for a long time, then they may be inclined to spread out the concessions over the course of the lease.

Also, you have to pay attention to the NNN charges, such as the property tax, the overall property insurance, the overall property maintenance and upkeep.   NNN Charges can add up fast, and they can be a source of sudden lump sum bills that pop up when you least want them.  For example, if the property had unexpected costs in NNN, the landlord will pass on a lump sum amount to cover the shortfall and you are stuck paying that bill, usually with a short timeframe attached to it. Also, be aware that if the landlord has owned the property for a long time and has a low property tax bill and that if it sells to new owner, the property tax will be reassessed and you can expect that the huge jump will be passed on to you as part of the increased NNN charges.

Try to negotiate a cap on the NNN charges, or attempt to get a Gross Lease, where there are no additional NNN charges, it is just a simple fixed payment amount. Gross leases are more common in Industrial properties. In Class A retail properties, the norm is that leases are NNN. Check out our posts about leasing and contact us to negotiate and renegotiate your commercial lease.

For More information on how Just Elementary, Inc, Business Brokers can help you with Negotiating Your Retail Commercial Lease for your business contact our Client Care Manager Sonia Chhabra at  (888) 926-9193 or email cs@justelementary.com