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How to Negotiate a Great Lease on Commercial Property
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How to Negotiate a Great Lease on Commercial Property


Securing a good lease for a commercial property can significantly impact your business's success. A well-negotiated lease not only helps you control overhead costs but also provides flexibility for growth and stability for your operations. Whether you're opening a retail store, restaurant, or office space, here’s how you can negotiate a favorable commercial lease.
1. Do Your Homework
Before you begin negotiations, research the local market. Understanding the going rates for commercial properties in your area will give you leverage in discussions. Look into comparable properties and their lease terms to gauge a fair offer. It’s also essential to know the property’s history, such as previous tenants, their rent, and why they left. This information can help you assess the landlord’s motivation and room for negotiation.
2. Consider the Location
Location is key for any commercial property. Ensure that the spot you choose aligns with your business goals and target audience. Foot traffic, accessibility, parking, and proximity to other businesses or complementary services can all affect your business’s success. A prime location may come at a premium, but the right spot can drive more traffic to your business, offsetting higher rent costs.
3. Understand Lease Types
Commercial leases come in different structures, and it’s essential to understand them before signing:
Gross Lease: The tenant pays a fixed rent, and the landlord covers all property expenses like maintenance, taxes, and insurance.
Net Lease: The tenant pays rent plus some or all of the property expenses (e.g., taxes, insurance, and maintenance). There are variations such as single, double, and triple net leases.
Percentage Lease: Common in retail spaces, this involves paying a base rent plus a percentage of your monthly sales. Understanding which type works best for your business will help you make informed decisions during negotiations.
4. Negotiate Lease Terms, Not Just Rent
Don’t just focus on the rent price; consider all aspects of the lease agreement. Here are some key factors to discuss:
Lease Length: The term length can significantly impact your flexibility. A short-term lease allows flexibility if your business outgrows the space, while a long-term lease may offer rent stability. Negotiate renewal options that favor your growth.
Rent Increases: Ask for predictable rent increases, such as a fixed percentage each year. This will prevent steep hikes and allow for better financial planning.
Build-Out Costs: If the property needs renovations to suit your business, you might negotiate for the landlord to cover or share these costs.
Maintenance and Repairs: Clearly define who is responsible for maintaining common areas and handling repairs. Negotiate to cap your financial responsibility in case of unforeseen major repairs.
Sublease or Assignment: Negotiate for the ability to sublease the space if your business expands or needs change, giving you more flexibility without being locked into a lease.
5. Get the Longest Free Time Possible for Permitting
A critical part of negotiating a commercial lease is accounting for the time needed for permits and build-out. On average, it can take 3-6 months to obtain the necessary permits, and construction or build-out can take even longer depending on the complexity of the work. This is where free rent periods become crucial.
Landlords often try to offer tenants 2-3 months of free rent, which can seem enticing. However, you should push for more time—ideally 8-9 months—to account for permitting delays and construction. Negotiating a longer free rent period ensures you're not paying rent before your business is even operational, and it allows you to focus on getting the space ready without unnecessary financial pressure.
6. You Need Blueprints to Get Permits
To move forward with the permitting process for your new business, you'll need a full set of blueprints that meet local building codes. This step is essential to getting city approvals for your business’s build-out. At Jean Prescott Studio, we specialize in creating detailed and compliant blueprints for commercial properties. Whether you’re planning a new build or a tenant improvement project, we can help you design a space that aligns with your vision while ensuring it meets regulatory requirements.
7. Negotiate Tenant Improvement Allowances
If you need to make modifications to the space, such as installing custom fixtures, painting, or reconfiguring the layout, discuss whether the landlord will provide a tenant improvement (TI) allowance. This is an agreed-upon amount of money that the landlord contributes toward the cost of making the space suitable for your business. Depending on the condition of the property and the length of your lease, you may be able to negotiate a substantial TI allowance, which can save you money upfront.
8. Understand Hidden Costs
Commercial leases often come with additional costs beyond the base rent. These can include:
Common Area Maintenance (CAM): Charges for maintaining shared areas like hallways, parking lots, and landscaping. Ask for a detailed breakdown of these costs and try to negotiate a cap on annual increases.
Property Taxes: In some leases, tenants are responsible for paying a portion of the property taxes. Clarify how these costs are calculated and how they might increase over time.
Utilities: Ensure you understand who is responsible for utilities and if there are any shared utility fees. In multi-tenant properties, the landlord may split these costs, so clarify your portion.
9. Negotiate Rent-Free Periods
Aside from the longer permitting time, ask for a rent-free period for build-out. The process of designing and constructing your space can often take longer than anticipated, and paying rent during this time can strain your budget. Requesting a rent-free period of several months for both permitting and construction is a savvy move. A rent-free period allows you to occupy the property and complete necessary work without immediately paying rent, which gives your business time to generate revenue before regular payments kick in.
10. Seek Legal Counsel
Commercial leases are complex documents with legal and financial implications. Hiring a real estate attorney to review the lease ensures that you fully understand its terms and that your interests are protected. They can also help identify potential risks or unfavorable clauses that could impact your business long-term.
11. Have an Exit Strategy
Circumstances change, and you need to have a way out of the lease in case things don’t go as planned. Negotiate a fair exit strategy, such as an early termination clause, or specify terms for assigning or subletting the lease. Being proactive about exit terms will give you flexibility and peace of mind, knowing you’re not locked into an unfavorable situation indefinitely.
12. Be Ready to Walk Away
If negotiations don’t go in your favor, be prepared to walk away. As a tenant, you have the power to choose the best deal for your business. Sometimes the best negotiation tactic is showing that you're willing to explore other options. Be patient and wait for the right opportunity that meets your financial and operational needs.
Final Thoughts
Negotiating a good lease on a commercial property requires research, preparation, and attention to detail. By focusing on more than just the rent and understanding the full scope of lease terms, you can secure an agreement that benefits your business in both the short and long term. When negotiating, prioritize getting the longest free time possible for permitting and build-out, and push for at least 8-9 months to avoid unnecessary costs. Remember, it’s not just about getting a property—it’s about finding a space where your business can thrive. And don't forget, you'll need blueprints to kickstart your permitting process. Let Jean Prescott Studio help you with everything from design to securing the necessary approvals to get your business up and running.
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(949)-791-7178

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