Negotiating a Commercial Property Lease

As a small business owner, you must make decisions about where your business will operate. Many first-time entrepreneurs start right out of their homes, but eventually outgrow their spare bedroom and must look for a commercial space somewhere.

What should you know about reviewing, negotiating, and signing a commercial lease? Here is a short overview to help you get started.

Research Rents – It’s true. It is all about location, location, location. One commercial lease on a main thoroughfare may be obviously worth exponentially more than a space on a back street. Whatever area you decide, research the going lease rates for your type of space (retail, office, warehouse) so you have a good idea what the average rent per square foot is. Generally, it is an annualized figure, For instance, a space that is $1.25 per sf per month is usually listed for $15 ($1.25 x 12) per sf.

Decide Your Length of Stay – If you have an established business and know your operations will continue in perpetuity, consider a longer lease. This gives you much more negotiating flexibility. On the other hand, if you are starting a new retail business, perhaps a shorter lease is best until your business gains momentum.

Terms of a Commercial Lease – What are the typical terms found on a commercial lease? Here are a few that are found on most:

  • Description of property (address, building, suite number, etc.), including square feet and amenities.
  • Monthly rent, and any escalation (annual increases)
  • Length of lease
  • Determination of who pays utilities
  • Determination whether the lessee (that’s you) pays any portion of common area maintenance (and if so, how they are calculated).
  • The rights, privileges, restrictions, and responsibilities of using the property
  • Whether landlord will make any improvements to the property (before and/or after you move in)
  • Whether you may sublease before the term is ended

Remember, a commercial lease is a legal document. Always use an attorney if you are not sure about how or what to negotiate.

In addition, don’t get pushed into believing that the lease presented to you is “standard” or “boilerplate.” EVERYTHING is negotiable, despite what your potential landlord tells you. Happy hunting!

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