Tips for negotiating a commercial lease – Part 2

| Sep 15, 2016 | Commercial Real Estate

This second installment in our blog series devoted to commercial leases examines some of the strategic points to consider in lease negotiations.

Price is probably the first lease term that comes to mind. Yet this term is also highly subjective, depending on factors such as the location of the commercial neighborhood, its reputation, and other details. It is important to research the neighborhood and understand the relevant market before entering negotiations.

For example, if the vacancy rate is high, a prospective commercial tenant may be able to take a more aggressive negotiating posture. Rent is generally calculated by multiplying the cost per square foot by the total square footage. However, a landlord may also include other costs associated with property upkeep in the rent, such as utilities, insurance, repairs and taxes. Through research and due diligence, an attorney can advise a client whether the tenant should negotiate for such concessions from the landlord.

Many commercial leases also include provisions for annual rent increases. A tenant may also request a landlord to offer a grace period for one or more years, as another possible concession during negotiations. A prospective can further safeguard its business strategy by obtaining the right to sublet or assign a lease. That way, the tenant will not be locked into occupancy should business operations fluctuate or require relocation.

If a commercial property is outdated or simply has not kept pace with the latest designs, a tenant may also be able to negotiate for improvements to the space. Such build-outs should specifically describe the party responsible for the costs, the deadline for having the work completed, and whether the property must be restored back to the original condition at the end of the lease term.

Source: Crain’s New York, “Is Park Avenue losing its luster?” Daniel Geiger, Aug. 21, 2016