Negotiating a Lease

Steve Strauss answers the question "How much is negotiable?" when it comes to your lease.

Negotiate CoupleQ: I was wondering how much is negotiable when it comes to my lease? The
pre-printed form my landlord handed me is intimidating.
 
Anthony
 
A: Negotiating a lease with a landlord is like any other negotiation. How much is
negotiable? In theory, everything is negotiable, especially if you are at the point
where you are negotiating over lease terms. In that case you need to understand
that you are in fact a very valuable commodity. It is not easy, especially today, for a landlord to find a
qualified commercial tenant. He or she probably wants you as much as you want the space.
You may be in the power position and not even realize it.
 
Example: I have a colleague who had been in the same building for 10 years. When his lease was set to
renew two years ago, as the economy turned south and vacancy rates rose, his landlord inexplicably
looked to increase his rent, figuring my pal would never leave after so many years in the same location.
My colleague demurred, stating that no increase was warranted in the current climate. The landlord
insisted on the rent increase. My associate found a better deal and did indeed move. His old space? Still
empty.
So the first thing to understand is that in order to negotiate a good deal on your lease, you need to do
some homework. What are similar spaces renting for? What is the vacancy rate in the area? The more
you know, the better deal you will be able to negotiate.
Other issues to consider:
 
Rent: When negotiating a long-term lease, be sure to ask for a few months free rent.
 
Assignments and subleases: Negotiate for the right to assign or sublet your space, so that if you need to
get out, you can. With an assignment, the new tenant will be responsible for the rest of the lease
obligations – rent, etc. With a sublet, you act as guarantor – the new person is responsible, but if they
default, you are legally still on the hook. Either way, the landlord will want the right to review or refuse
the person you pick, and that is reasonable.
 
Gross or net? A gross lease is one where the landlord pays the taxes, insurance, utilities, maintenance,
and so forth. A “triple net lease” is one where it is the renter who pays, in addition to rent, all of those
operating expenses. So, with a triple-net lease, you must be very clear about what is, and is not,
included.
 
Escalation charges: Be sure also to try to restrict any “escalation charges” for later years. Escalation
charges are included so as to secure the landlord’s probability in later years. Escalation charges cover
things like increased property taxes, higher insurance costs, maintenance increases, etc. Although you
will be asked, you do not have to agree to share these costs.
 
Signs: Discuss the issue of signage early, long before you sign any agreement. Sign issues can be dealbreakers.
 
Utilities: Under some leases, the lessee must purchase the utilities from the landlord. In that case, be
sure that the lease grants you the right to audit your utility bill. That keeps everyone honest.
 
Renovations: Your landlord may agree to contribute to renovations before you move-in because doing
so increases the value of their building. Added bonus: It helps lock you into a multi-year lease.
 
Restrictive Covenant: You may want to ask for a restrictive covenant to prevent competitors from
opening similar businesses in the building, area, or mall.
 
Finally, it is important that you review the proposed lease with your lawyer. The lease was drafted by
the landlord’s lawyer for the landlord’s benefit. Having your own lawyer then will help you understand
what is reasonable in the document. Although you might be presented with a pre-printed lease that
seems like it cannot be changed, it can. I always say that a contract is also called an “agreement” for a
reason. Both sides must agree to all conditions. If you find something that you and your lawyer do not
like, negotiate to change them.
 
Always remember: Everything is Negotiable.
 
Today’s tip: The best thing you can do vis-à-vis your lease is to cultivate a positive working relationship
with your landlord. That will go farther towards working out problems than a dozen nastygrams from
your attorney.
 
Do you have a question about negotiating a lease? Connect with a mentor online or in your community today!

About the Author

Steve Strauss HeadshotSteven D. Strauss is a lawyer and writer and is one of the country's leading experts on small business as well as an international business speaker. The best-selling author of 17 books, his latest is the all-new 3rd ed. of The Small Business Bible. You can listen to his weekly podcast, Small Business Success Powered by Greatland, visit his new website for the self-employed, TheSelfEmployed, follow him on Twitter, and "like" TheSelfEmployed on Facebook. You can e-mail Steve at: sstrauss@mrallbiz.com. © Steven D. Strauss