How to Negotiate Leased Space for Your Business

When looking to lease commercial space for your business, a good commercial broker is a must. However, you should have an understanding of the items that can be negotiated and knowledge of the factors that will influence your decision.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Good commercial broker that knows the area

1. Know how much space you need and whether the property owner will consider a minimum or maximum square footage. Request a space plan and the actual square footage of the premises. Find out the rent per square foot (PSF) and whether the cost is dependent on the amount you lease or the term of the lease.
2. Ask for the common area percentage of the building and if the rent includes maintenance for this area. This is known as common area maintenance (CAM). It is often an addition to the monthly rent or an annual assessment per tenant. This can include upkeep to the property’s landscape, garage or parking and/or may include dwelling insurance, operating expenses, and taxes. CAM may also be called Triple-net. If these expenses are not included in a monthly CAM, ask landlord to indicate any responsibility you will have regarding any pass-through of building operating expenses and real estate taxes.
3. Know that the commencement date is the date you can move into your space or start renovations. This date is important if it is a new building under construction or a space already occupied.
4. Know the lease term, often stated in years, that the landlord will accept. Often rent and lease improvement amounts are determined by the lease term.
5. Know the proposed rental rate escalation. This is often the increase in annual rent each year.
6. Request a tenant improvement allowance per rentable square foot. This may also be called leasehold improvements, build out or upfit. This is the amount the landlord will contribute to outfitting your space to suit your needs. If this is a new building, make sure you understand your responsibility to build out the space. This can include installing walls, ceiling, insulation, window blinds, floors, bathrooms, HVAC, electrical, plumbing and painting.
7. Ask for rental concessions. This is the amount of time the landlord will allow before the first month’s rent is due. This is generally between 90 to 150 days or commencement of business operations.
8. Be aware of options to rent when your lease expires. You want to have the option to renew the lease for an additional number of years.
9. Consider parking allowance and allocation, building access and security and signage requirements.

Tips & Warnings

• Getting the most of your leased space is often determined by the market conditions in your area. Ask your broker for a market summary of area rents and vacancy rates.