Commercial Leasing Guide

commercial-leasing-guide

The famous saying ‘everything in business is negotiable’ has never been more true for commercial property leasing. Whether you are a well-established employer or a small business owner, you need to remember that the landlord sets the lease terms and usually makes it in their favour. This makes negotiating the terms of a lease essential to make it suitable for all parties instead of accepting the first offer.  

Most landlords accept negotiations, especially if the negotiation will ensure that a high-quality tenant occupies their land for an extended period.  

Is a negotiation possible for a commercial lease?

Although commercial landlords may not like the idea of negotiation, tenants can alter the lease to their favour in several instances. Experts advise that before entering a lease agreement, you should negotiate. 

The negotiation process usually starts with the tenant negotiating directly with the agent or offering a counteroffer.

How are commercial leases negotiable?

Commercial leases differ significantly from a home rental agreement. A commercial lease is usually longer than a home rental agreement. It also has several additional clauses and obligations, such as who would be responsible for fit-outs and maintaining the property.  

This makes a lease for commercial premises more complex. However, it gives additional room in the contract for the tenant to set the terms.  

The following are some things that are negotiable in a commercial property lease. 

  • Length of agreement 

Before agreeing to any commercial leasing, you need to consider its terms and what is suitable for your business. Generally, landlords prefer a long term lease agreement, which means securing a short term lease may not be possible, and its negotiation would be difficult. 

Most landlords want a longer lease because it provides security. If you’re going to commit to a lease for more years, you would likely have more leverage for negotiating other aspects of the deal.  

  • Price 

Generally, landlords do not like negotiating face rent. The face rent is the base figure calculated for each square metre covering maintenance, tax, building, and other outlays. However, the landlord may be open to offering discounts due to COVID-19. The post-COVID-19 market has increased the number of landlords looking for tenants. 

Before negotiations, you may want to check the property’s rent at the market rate, check if the location is in high demand, and ask about the history of the premises. Getting this information gives you a better position in the bargaining process.

  • Incentives 

Some landlords may offer incentives instead of reducing the rent. This may be based on the margin calculated into the base rent and include offers such as a period of no rent, contribution to fit-outs. In some cases, the landlord may cover the cost of the end of the current lease to ensure you extend the lease. 

Most landlords prefer incentives, and in a competitive market, some landlords may offer to pay the tenants outstanding rental commitments. Big market tenants usually have the upper hand in commanding substantial incentives, and these deals may come in cases of downsizing.

  • Fit-outs 

Before starting a new commercial lease, the tenant usually needs to ensure the premises are suitable for further use, so you may want to check if the landlord is offering to make contributions for the fit-out.  

If the landlord agrees to bear some costs for fit-outs, the payment will likely come after the work, not as reimbursement in cash. Most times, it is included in the rent throughout the lease or a period without rent. 

The landlord may decide not to charge rent for a specific period while carrying out the fit-out jobs.  

  • Outgoings 

Commercial leases often require tenants to pay outgoings. This may include council rates, the owner’s corporation fees and water bills. A tenant can negotiate these costs to be transferred to the landlord in the lease agreement.  

Steps for negotiating a commercial lease 

If you want to lease commercial property and intend to negotiate some terms on your lease, the following simple steps can give you a better chance of securing a good deal.

  • Analyse the market 

Note that negotiating may not be possible in all circumstances. For instance, when a landlord has several potential tenants, the landlord may be unwilling to budge to your terms. However, the landlord will be more willing to accept some of your terms in a low-demand market. This allows you to negotiate better on several properties to get a fair deal. 

  • Start early 

Leasing agents usually have a database and will start contacting tenants about 16 months before their lease expires to offer them deals. This period is a perfect time for tenants to checking out offers. 

If you intend to sign a new lease, you can start talking about the incentives. Although you can begin negotiations mid-lease to replace an old lease, it may not be easy.  

  • Negotiate the deal 

The duration of negotiating a commercial property lease varies considerably. Most times, the negotiation is quick but complex deals may last from weeks to months. 

Sometimes, several tenants negotiate at once for a property, so you may want to look at several properties simultaneously to avoid disappointments, especially when the market is competitive.  

  • Get an inspection 

Carrying out a final inspection before signing the contract for a lease is important. The inspection may involve getting a commercial property inspection for the task of even walking through the property yourself.  

This step is necessary even if you want to renew the lease. An inspector may find something that may change your mind about renewing the lease or give you an additional bargaining option.  

  • Get legal advice 

Commercial properties usually have different obligations from residential properties, including additional clauses in the contract. A commercial contract will include the costs the tenant has to pay. This means you need to understand all your obligations before signing the lease contract.  

Getting a good commercial property lawyer may cost a couple of pounds more, but the lawyer can help you understand the specifics of the contract and point out red flags, if present. 

  • Consider getting help 

Several tenant representative professionals and groups are available to help you get a better lease deal. If you don’t feel comfortable dealing with a lease contract, you may have to pay a property lawyer or agent to help you.  

If you need an experienced commercial real estate agent to help you secure an excellent commercial property lease, contact AM Rutty Coastal Estate Agents today. 

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