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:
- Gross leases (tenant pays rent only)
- Net leases (tenant pays rent plus a percentage of operating expenses, maintenance fees and insurance premiums)
- Triple-net leases (tenant pays rent plus all additional fees and premiums)
- 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 completelyRead 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.
Get what you needCalculate 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.
Analyze rentLocation, 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.
Discuss lease lengthA 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.
Address improvementsIf 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.
Agree on allowed usesCommercial 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.
Protect yourselfIf 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.
- 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.