Negotiating a Commercial or Office Lease

Tips on landing the best location with the best terms
By Matt Alderton, Writer, Editor and Media Consultant Logolepsy Custom Content and Communications When you look at your monthly business budget, you'll likely find one of the highest numbers on the line next to the word "Rent." That's because office space typically is one of a company's largest expenses. It's also one of the most important. Negotiating a good deal on your lease, then, is essential. The most common types of commercial leases are:

1. Gross leases (tenant pays rent only)
2. Net leases (tenant pays rent plus a percentage of operating expenses, maintenance fees and insurance premiums)
3. Triple-net leases (tenant pays rent plus all additional fees and premiums)
4. Shopping center leases (tenant pays rent plus a percentage of maintenance fees and perhaps a percentage of gross sales and property taxes)

Read carefully and completely

Read the fine print. In fact, read all of the print. Doing so is the best way to protect your business from potential space-related snafus.
Try:  Download a sample commercial lease agreement for your state from the Internet Legal Research Group.

Get what you need

Calculate how many square feet of usable office space you need before beginning any negotiations. Signing the best lease with the most favorable terms is worthless if the space doesn't suit your needs.
Try:  Use OfficeFinder.com's office space calculator to determine your needs.

Analyze rent

Location, size and set-up affect lease costs, and all are good fodder for rent negotiations. Remember to figure security deposits, application fees and insurance into your rent estimate. Ask if utilities are included, and if you'll be expected to pay a portion of the landlord's property taxes or contribute to common area maintenance.
Try:  Familiarize yourself with commercial real estate markets to find out what you should be paying for space. Check prices on available office rentals in your area at StarOfficeSpace.com or review free market information from OfficeFinder.com. For a fee, you can purchase Cushman & Wakefield's latest "Office Space Across the World" report or the National Association of Realtors' "Commercial Real Estate Outlook."

Discuss lease length

A landlord is likely to be more flexible in negotiating a longer-term lease. Your business, however, will probably want some flexibility, too, and should therefore explore shorter-term leases with favorable renewal options.
Try:  Lease length is just one consideration among many in lease negotiations; download AllBusiness.com's "Checklist for Office Leases" for a complete list of issues that deserve your attention.

Address improvements

If you anticipate doing work on your space, get permission to do so in your lease and watch for clauses requiring you to return the space to its original condition. If the landlord agrees to make any repairs prior to your move-in, get it in writing.
Try:  Having a skilled commercial real estate broker in your corner will help tremendously in negotiating the nuances of your lease, including repair and improvement clauses. Find a broker in your area by searching Cityfeet's Commercial Broker Directory or CCIMNet's Professional Directory.

Agree on allowed uses

Commercial leases generally include the type of work that may be performed in the space. Landlords will want to make the "allowable use" as narrow as possible, but you should strive to make it broader to allow for future opportunities and new lines of business.
Try:  Make sure your space is zoned appropriately, and that your lease includes a zoning assurance. Don't take your landlord's word for it, either; check with your local government, a link to which can be found at State and Local Government on the Net.

Protect yourself

If your business fails, you may be left with rent you can't pay. As such, make sure your lease allows for subletting your space. Likewise, if your business succeeds, it may outgrow its space. Make sure your lease affords you a right of first offer, which gives you first dibs on any new space in your building.
Try:  You'll need a lawyer to pore over the terms of your lease before you sign it. Choose one who's used to working with small businesses and who has experience reading commercial leases. Find one at Real Estate Lawyers.com. Review and purchase a commercial sublease agreement from AllBusiness.com.

• Beware of rents calculated per square foot of space, as square-footage often includes space that isn't usable, such as elevators or shared hallways.
• Ask for a rent cap to prevent drastic increases in your rent payments upon renewal.
• If the market allows, you may be able to negotiate a cash allowance to cover repairs and improvements, a credit to your account or other lease-signing incentives.