Lease Negotiation

Crafting Your Ideal Lease - Can A Business Consultant Assist Business In Preparing For Lease Negotiations?

Disclaimer: I am not affiliated with the State Attorney's office. However, I've had the privilege of gaining extensive experience with commercial real estate leases, which allows me to offer valuable insights.

Drawing from my expertise, I can provide advice on key factors and warning signs to consider when negotiating a lease. This guidance is based on my own experiences as a business owner and my work with clients. I believe there's a strategic approach to dissecting these types of leases, identifying what's in the best interest of the client, and discerning what should be avoided.

The role of lease negotiation in a business’s success is so often overlooked., so my goal is to help people navigate lease negotiations by leveraging my knowledge and insights into what makes a lease favorable and of value for their unique business needs.

What Are Some Of The Key Considerations That Business Owners Should Keep In Mind When Entering Negotiations For Commercial Properties?

Several vital considerations can make or break a deal when entering negotiations for commercial properties. Here are some key factors to bear in mind:

• Emotional Restraint: The cardinal rule is not to let your emotions get the best of you and cloud your judgment. Falling in love with a particular space can lead to hasty decisions. Always explore alternatives and consider whether there are different areas or options better suited to your needs.
• Letter Of Intent (LOI): Work through the details of the LOI (letter of intent) before proceeding. This document serves as the foundation for the lease agreement. It's worth noting whether the landlord is willing to put together a comprehensive LOI. The offers and terms outlined in the LOI can provide insight into their intentions and what the final lease may look like. If the LOI is brief and lacks substantial offers, it could be a potential red flag.

When it comes to the lease itself, here are the things you’ll want to consider before you dive in:

• Lease Term: Make sure that the lease term aligns with your business strategy. If you only have a three or five-year plan for your business, don't sign a 10-year lease.
• Annual Rent Increases: Check whether the annual rent increases are in line with the Consumer Price Index. Examine the percentages and the basis upon which they are calculated, typically near the end of the lease or in an addendum.
• Market Comparisons: Research comparable properties in the area to make sure the cost per square foot is reasonable and not inflated. Don't let the landlord overcharge you.
• Tenant Improvement Allowance: Negotiate for a fair tenant improvement allowance. This can include free or reduced rent during the initial term while construction or improvements are taking place in your space. Also, consider what allowances the landlord is willing to provide for equipment or restroom additions, which can be important for your business if it requires additional facilities.
• ADA Compliance: Assess the lease terms for ADA compliance requirements. Meeting accessibility standards is critical, so any modifications that need to be made should be clearly defined at the outset.
• Landlord Indemnity: Review clauses related to landlord indemnity to understand the extent of the landlord's responsibilities in case of unforeseen issues or liabilities.

What Are The Common Pitfalls That Business Owners Make During These Lease Negotiations?

A common and costly mistake in lease agreements is overlooking the landlord protection clauses. These provisions are nearly universal in standardized leases and are designed to shield landlords from external actions and liabilities. These clauses may encompass a wide range of issues, including:

• ADA Violations: Landlord protection clauses can hold tenants responsible for ADA violations. This might include issues related to accessibility, common ones being slopes of hills.
• Exterior Maintenance: Consider what parts of the property's exterior are the tenant's responsibility and which are the landlord's. Elements like the parking lot, sidewalks, and awnings may fall under these clauses.
• Roof Coverage: It's vital to determine whether the lease covers roof maintenance and repairs. The roof is a critical component of the property and should ideally be the landlord's responsibility.

Sidewalks and ADA compliance, in particular, are often significant areas of concern for many tenants. Landlord protection clauses can have far-reaching implications, so be aware of what's included.

What Considerations Should Be Taken Into Account When Negotiating The Lease Terms For Different Types Of Properties?

When negotiating lease terms for various property types like retail spaces, office buildings, or industrial warehouses, several essential considerations come into play. The nature of your operation is a significant factor, with different property types requiring distinct assessments.

For instance, if you're running a food service establishment, you're dealing with specialized equipment such as electrical appliances and gas systems. In such cases, you'll often need more extensive plumbing infrastructure, including features like floor sinks. This also means a higher electrical load on your grid.

What’s more, evaluating the property to determine if it meets the requirements of your business model is vital. You need to ask questions like: What modifications are necessary to make the space compliant with your specific needs? Who will cover the cost of these modifications? Are they in accordance with local regulations? Additionally, you must verify if the property is zoned for the type of business you plan to operate. All of these factors must be thoroughly examined before signing a lease.

This brings to mind a client I once worked with who found an incredible space and even benefited from a city program that allowed them to subsidize their rent. However, after signing the lease, they encountered an unexpected roadblock: they needed to install a three-tiered sink for their food service, as required by the health department.

When they revisited their lease, they discovered they couldn't add the sink because they were not permitted to make that type of change to the property. This situation forced them to exit the lease despite the perfect location, site, and size of the space. Regrettably, they weren't correctly zoned. I helped them find another space, but I wish they had sought my services before committing to that lease. For more information on The Role Of Lease Negotiation In A Business, an initial consultation is your next best step.