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Tips on negotiating a commercial lease

Thursday, September 5th, 2013
Issue 36, Volume 17.
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NORTH COUNTY - Leasing commercial space is a fact of life for many business owners. The expense of commercial leasing is considerable, but cost is not the only factor to consider when leasing a commercial space. The following are a few tips for business owners when negotiating their commercial space lease.

*Enlist professional help. While seasoned business owners may be able to negotiate a commercial lease on their own, new business owners often benefit from the services of real estate brokers and real estate attorneys. Attorneys can negotiate a lease and explain key terms and conditions that may prove confusing to first-time business owners. Real estate brokers can help one find the right location, and many real estate brokers have a long working history with landlords. Such relationships can make the negotiating process easier, and they also can benefit business owners looking for the best possible location for their businesses. Real estate brokers often get first choice at the most desirable locations, so teaming up with an established real estate broker can increase chances of landing a desirable property.

*Emphasize affordable renewal options. The length of commercial leases favored by small businesses is often similar to the length of a lease on a private residence. Though the language might be more complex than that of a private residence lease, the length of a commercial lease agreement is typically one to five years. But business owners must be diligent regarding renewal options and the cost of such renewals. Come the end of lease terms, a lessee doesn’t want to be met with a considerable and unexpected hike in rent just as their business is starting to take off. Work to get the most favorable renewal options possible so more of the businesses operating budget can go into products and not toward the lease.

*Pay attention to extra fees. Many commercial leases include fees in addition to the monthly rent. Maintenance fees are common, and there may even be a separate set of maintenance fees when sharing commercial space. When negotiating a lease, ask to see a list of the costs and fees current tenants typically incur each month. When discussing maintenance fees, confirm who must pay for less routine maintenance, such as HVAC or plumbing repairs, and be sure to get such information included in the lease. When discussing such fees, inquire about utility costs as well. Utilities are often the responsibility of the tenant, but it still behooves business owners to confirm who will be paying the monthly utilities.

*Negotiate an exclusivity clause. Business owners often don’t want their competitors to move in across the street, and they certainly don’t want them to move into the same building. Protect a business from such a development by negotiating an exclusivity clause into the lease. Such clauses prevent landlords from leasing other spaces on the property to a competitive business.

*Carefully read the default language. Before signing a commercial lease, business owners must familiarize themselves with the default language therein. Determine what happens if you default on the lease, including if you will be locked out upon your first missed payment and if the landlord will immediately initiate eviction proceedings in such instances. Many commercial leases also include language stating tenants are responsible for any legal fees landlords accrue in the case of a default. Though it might be difficult to negotiate the default language in a lease, business owners should still know that language prior to signing a lease.



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