Signing a commercial lease is an important business decision and one of the greatest financial commitments that business owners make. Here a few common mistakes that tenants make during the lease negotiation process that you’ll want to avoid:
Don’t forgo hiring a commercial real estate broker. Even if you have extensive transaction experience or an internal real estate team, the decision to hire a tenant representation broker can do wonders for your business. Brokers have the market knowledge and skillset to find a property that meets your specific requirement and negotiate a favorable lease on your behalf. Many tenants worry about the cost of commissions; oftentimes, your landlord will cover that fee. You may also see a significant return on investment in the form of lower rent rates, higher tenant improvement dollars and other landlord concessions.
Never sign a commercial lease if you don’t understand all the terms. You should read through your lease agreement carefully to prevent future conflicts with other tenants and the landlord. Your tenant representation broker and attorney can help you understand the legal jargon and answer any questions you may have. Some key aspects to focus on include:
If you find a clause that will negatively impact you or your business, you should try to negotiate the terms to get a better deal.
Real estate is often one of the largest expenses for a business, so rent rate may be a major factor in choosing a commercial space. While finding a property that suits your budget is important, you shouldn’t base your decision solely on price. The following factors should also be considered to ensure a space will benefit your business:
Too many business owners focus their real estate strategy on their current needs. You’ll want to ensure the terms of your lease accommodate future growth or financial decline. If you anticipate rapid growth, you will benefit from a right of first refusal clause. With this clause, you claim rights to additional space in the property as it becomes available. If your financial projections are shaky, consider negotiating a sublet or early termination clause. These clauses provide the option to leave a space before the lease term is up.
Tenants should never underestimate how long it takes to find a rental space. Give yourself plenty of time to search for properties, obtain proper financing, negotiate lease terms and conduct tenant improvements. If you plan on relocating, you should start searching at least 12 months before your current lease ends. Don’t procrastinate or you may end up stuck in your current space with a high lease rate or in a new, less-than-ideal space.
If you have further questions about your commercial lease, contact a member of our tenant and buyer representation team. We’d love to learn more about your business and assist in your office relocation or lease renewal.