Commercial Lease Negotiation Tips for Entrepreneurs

Commercial leases are prepared by landlords, and crafted to favor landlords. As a potential tenant, you need to review any commercial lease with your rights and requirements in mind.

Here are some tips for negotiating commercial leases:

Decide on length of lease according to business needs.

Most small businesses are well-advised to negotiate a lease term of one to two years with an option to renew. With a shorter term, you will not be tied to the space for too long if you outgrow it or if you find more favorable rent conditions elsewhere. However, if your business is location-dependent — like a restaurant or bar — you should probably opt for a longer term lease.

Determine a fair price.

By doing your research on current commercial rental prices in your area, you will be in a better position to negotiate a fair price for your lease. When signing multi-year deals, landlords will typically want to increase the rent each year. Be sure to negotiate a cap for those increases so you know your overhead for the next few years.

Watch for hidden costs.

Typically, commercial leases make tenants responsible for certain maintenance and upkeep on their leased space. If you are negotiating a net lease — meaning that you will be responsible for other costs in addition to your rent — determine exactly what expenses you will be responsible for so you can negotiate the lease to be as favorable to you as possible.

Negotiate for favorable clauses.

If there will be additional costs incurred to fit out the space to your specifications, you can negotiate with the landlord to assume those costs and do the work for you. If your business is dependent on an existing anchor tenant, you can protect yourself with a co-tenancy clause that allows you to break your lease if that anchor tenant leaves. You may also want to negotiate for a subleasing clause that will allow you to sublet the space if your business has to relocate or closes.

Pay special attention to clauses pertaining to default and termination of the lease — you want to have a clause that allows you to cure a default prior to eviction, especially one that allows you to pay any arrearage to avoid eviction instead of having to pay the entire amount owed on the lease.