A lease agreement can often be seen as a hassle that should be dealt with as quickly as possible. This is an ineffective way to operate your business. A commercial lease when properly negotiated can make a business huge savings. Alternatively, a poorly negotiated lease can cost a business thousands without them even realising. With the advent of online shopping, lease agreements for brick and mortar retailers are even more important. The below are a list of considerations that should be made when negotiating a new lease agreement.
1. Understand the costs faced by the landlord
When negotiating a new lease, consider the implications to the landlord. It is in their best interest to retain your tenancy – This means less work and expense for them to find a new client. Consider what costs they must cover such as advertising, refits and space planning in the advent of a vacant space. To a landlord, an empty building is a money pit, and you can use this to your advantage when negotiating.
2. Work out the true cost of the lease
There are many tenants who do not fully understand the true cost of a lease. They may not have knowledge of the intricacies of a lease agreement and miss important costs. These costs could increase your lease agreement and leave you short for other areas of business. Additional considerations could include tax protection, landlord responsibilities, and square footage calculations. If you are not aware of all the associated lease costs, consider hiring a tenant broker.
Do not wait for your lease to end before contacting the landlord! This will put you on the back foot immediately and give the landlord reason to pressure you into an unfavourable deal. The longer you wait, the less time you have to negotiate and create a favourable contract. It is advisable to contact your landlord well in advance, preferably 18 months before the lease is up. This will give you plenty of time to negotiate and properly research the above points.
4. Do not give in to bullying tactics
Landlords have a tendency to pressurize tenants into agreements. Do not let this happen! If you are approached early with a low rate, do not just accept it. You are not obliged to agree to any contract straight away. Do not let the landlord dictate the terms of the contract or set the pace of the negotiations. Be firm and be clear in your answers and give them in your own time. If you are unsure of anything the landlord proposes, seek professional help from a broker. Do not simply agree to a lease blindly because you feel pressured by the landlord!
5. Conduct market & property research
Ensure you thoroughly understand the property requirements of your business. Look at other properties in the local area for cost comparisons. Ensure your business is using the floor space effectively – maybe smaller premises would suffice? Effective space management can reduce your per-square usage by 10-15%. If you have researched your requirements fully (and also other possible locations), you should have great leverage when brokering a new lease agreement.
While negotiating a favourable tenancy agreement takes skill, patience, and perseverance, using the above 5 tips will help greatly in turning the tides in your favour.