Tips For Commercial Property Leasing Negotiations
In today’s commercial property market, lease negotiation has perhaps become the forever normal and expected as businesses seek to relocate to attractive new premises. It is crucial to remember that the tenant has all the leverage in most commercial rental or leasing circumstances given that vacancies are commonly available in most commercial real estate marketplaces. Therefore, exhaustive preparation by the landlord in commercial property leasing negotiations is key to protect the landlord’s position.
In many respects it does not matter what rental you start at in any new lease, but rather where you finish. The start rental in a lease only matters when you are about to sell a property or refinance a property. If the landlord intends to hold the property for a number of years, then the start rental will be escalated through the rent review process.
Landlords that set aggressive rentals in this market find that it is difficult to lease or rent the premises.
Unfortunately vacant commercial premises become stale quite soon and tenants loose interest; they simply move on to another property where the landlord is more realistic. If a tenant shows genuine interest in any vacant premises, then the landlord should show a genuine interest in a market structured lease package.
Remember that long term vacancies frustrate everybody. The critical point that each landlord must understand understand is that the landlord needs to do all the research and required preparation well in advance, before, and prior to the arrival of the prospective tenant at the commercial property location to see the premises. The landlord must set the occupancy rules before leaving the office and inspecting the premises!
What are the triggers and key points for negotiation when you offer a commercial property lease to a tenant? To start with, remember that the tenant will have a focus on the future. Look at the negotiation from that angle. Here’s a brief explanation:
1. Strategic Lease Planning applies not only to a landlord but also to a tenant. What are the critical dates of moving and what will provide the least amount of business disruption for the tenant? Find out how their business cycle works and how the customers will be impacted by the property move. The tenant will also have an idea of how long will they require the premises. This will impact the lease term and any options the landlord may choose to offer.
2. Site selection and the available alternatives must be fully understood. In any property market there will be a selection of properties competing with each other. From a tenant perspective, it pays to identify the differences using a checklist or chart that illustrates the process for the tenant, regional maps and details of transport corridors.
3. Improvements and/or changes on the property have some attraction and offer flexibility for the tenant. Discussions between the tenant and landlord early in the lease negotiation process will help all involved parties with these points of discussion before they arise.
4. Lease incentives in the modern commercial property setting are quite common. They could be a variety of strategies including rent free, cash, reduced rental, and landlord funded fit out. It is a matter of what works for the landlord, and most assuredly should be established by the landlord at the earliest stage of negotiation, and well before the tenant asks the question.
5. Negotiation discussions need to be set around the ideal start rental, rent reviews to be targeted, available space currently available and any expansion space, option periods, and lease renewals.
6. Make solid lease or rental provisions regarding the end of occupancy to enable all parties to prepare and plan for the process. The tenant impact on the premises should be neutralized and remedied prior to their exiting at the end of lease term. The timing of the exodus as well as clear definitions of the works required are essential.
7. Design requirements of the landlord, build restrictions and parameters, and any fit-out configurations must be part of the lease or rental negotiations.
Preparation is the key to success in most things in life … and most definitely with any commercial property lease/rent negotiations. Include the aforementioned details to prompt great commercial lease negotiations that will achieve an equitable and hopefully profitable lease or rent outcome for both the landlord and tenant.
If you are looking to rent or lease commercial or residential property throughout the States of Georgia and/or Florida check out Governors Management, LLC at https://www.governorsmanagementllc.com, or (888)312–7740. They will keep your property needs in mind!
