How To Negotiate a Commercial Lease Agreement

A commercial lease contract is a document that details the relationship between a tenant and a landlord who wishes to lease out his or her property. In the blog below, you will learn how to negotiate a commercial lease agreement. 

Inspect the House

Visit the property and calculate the square footage to ensure it is accurate. Check the condition of shared amenities such as the washrooms, balconies and staircases. Conduct market research to determine whether the property is reasonably priced.

Understand the Type of Lease

In a gross lease, the landlord caters for extra expenses such as property maintenance, taxes and insurance. Before signing this lease, inquire when the property will be cleaned and any limitations on the use of utilities. For instance, the landlord may have a limit on the amount of electricity a tenant can use.

If you opt for a net lease, inquire how the landlord calculates payments for shared expenses such as common area maintenance (CAM), taxes and insurance. Ask when and how you should make these payments. What would happen if the landlord defaulted? The lease also should have a cap on the CAM. For example, take a situation where a landlord wants to install features such as a swimming pool or fountain that add no value to your business. 

Favourable Clauses

The following are some favourable clauses you should ask for; 

• Ask for a free rent period. It allows you to get your affairs in order and recover your initial costs before you start paying rent.
• The landlord should allow you to sublease the property.
• A competitor clause prevents the landlord from leasing space to similar businesses.
• The landlord should give you priority to renew the lease. It is a sure way to ensure business continuity. 

Contract Review

Your business is bound to change over time. For example, you may be facing a recession and can no longer afford to pay rent on time. Besides, you may want to change the type of lease agreement. Ask the landlord to include a contract review clause that enables both parties to adjust the terms of the lease to suit changing conditions.

Termination Terms

You may want to terminate the contract if the venture is no longer profitable or if you need to change the location of your business. The contract should have reasonable terms of contract termination. For instance, you should not incur penalties. The landlord should give you a few months notice if he or she wishes to terminate the agreement. 

When negotiating a commercial lease, inspect the property, check the type of lease, ask for favourable clauses, check the terms of contract review and termination.

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