1. Money

How to Negotiate Commercial Leases That Favor Tenants

Part 3: Putting Your Leasing Offer Terms in a Letter

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Listing Your Leasing Terms in an Offer or Counter Offer

  • Length of the Lease: If you want to change the length of the lease terms, be clear. For example, is the lease you want is for two years with three, one-year renewal options (totaling five years); or a straight five year lease with no renewal options? This makes a very big difference in how long you will be locked into a lease and how a landlord might feel about other terms you are asking for in a counter offer.

    Most landlords prefer two-year or longer leases, but never hesitate to ask for a one-year lease. One-year leases may cost a little more, or have fewer lease renewal options, but you are locked in for less time. Unless you are a multi-million dollar company, it rarely makes good business sense to sign a lease that commits you to the space for more than two years.

    Keep in mind if your business outgrows the space, you do not want to be stuck with a long lease. Or worse, if your business struggles and you need to down-grade to a smaller space, you may have a hard time breaking your lease.

  • Condition of the Property: If you are asking for the space “as is” or if you need the landlord to make repairs or improvements first. If you are planning to renovate the property, briefly describe the proposed renovations. You want this included in a lease, because often a landlord will offer some sort of incentive or “allowance” if you renovate certain types of properties. If you are unsure what allowances you might be offered for any renovations, keep things open. Offer to submit more detailed information about renovations for the landlord’s review to offer you some sort of considerations for improvements.

  • Occupancy Date: Tell the landlord when you want to take physical possession (move in, gain access, or take responsibility for the property). In some cases, when the date you take physical possession may be different than the date you will begin paying rent.

    For example, you could ask the landlord for an occupancy date and rent start date of January 1, 2009, but ask that the first month be rent-free. In this case, the lease would begin on January 1, 2009 and the landlord could write off the free month’s rent. The tenant would occupy the space for 12 months and the lease would run for 12 months.

    Another way of getting the same thing (a free month of rent) is to ask for an occupancy date of January 1, 2009, with a rent state date of February 1, 2009. This means the lease would actually begin one month from the date you move in, or on February 1, 2009.

    This type of negotiation only works in a space that is already unoccupied and the landlord is eager to have someone move in because it favors the tenant. In essence, you not only get one free month rent, you get to 13 months of occupancy out of a 12-month lease.

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