Commercial Leasing Tips and Techniques
The importance of time, timelines, and timing
As we emphasize in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, the leasing process is not a simple task. Considering the number of steps involved and potential hurdles, properly planning and allowing ample time can save commercial tenants aggravation and—more importantly—money.
One common mistake commercial tenants can make is agreeing to terms too quickly with the real estate agent. We routinely hear from frustrated tenants who signed too hastily and realize after the fact that they may have made a mistake. While they do good work, agents work for the commercial landlord (rather than the tenant) and they will often push a prospective tenant to lease a unit that may not be the best choice (it may be too large or too expensive). The long-term success of the commercial tenant is of little importance to the agent—the agent’s motivation will often be a promised commission from the landlord (and that commission will typically increase when the tenant leases more commercial space and leases for more years). It’s not uncommon for potential tenants to receive a call from the agent saying that someone else is looking at the space that they looked at last week, pressuring business owners to “hurry up and sign.” Don’t let things like that sway you: go your own speed and get it done right.
As a business owner, you will want to devote your time to doing what you enjoy and what is best for your business. Smart entrepreneurs often realize that they cannot accomplish everything that needs to be done, so they hire outside professionals (lawyers, accountants) to help them. Considering the amount of work involved with your own commercial lease, it can be worthwhile to use a professional lease consultant to ensure that you get a better—and fairer—lease deal with the landlord. For the best results, everything that needs to be done before signing a lease can easily take from twenty to forty hours… will you have this kind of time to spare?
Start Early, Check Your Work
Moving from time to timelines, scour all documents for deadlines and note these conspicuously. It may be possible to adjust these deadlines depending on the circumstances. You may find that some steps (getting financing in order or having a contractor inspect the commercial space) are beyond your control and you will need more time to get everything in order. While you could keep extending your condition periods by several days with your landlord, it is often better to simply ask for a longer condition period (perhaps twenty or thirty days) to ensure everything can be done.
New business owners need to keep in mind that timing will play a vital part when their lease renewal comes due. It is not unrealistic for commercial tenants to begin their lease renewal process twelve to fifteen months prior to their lease expiration date. More precisely, look at your renewal option clause. If this says your cut-off date for exercising your lease renewal is six months before your lease expires, you would need to start the renewal process six months before that, or a total of twelve months in advance.
If you have joined (or plan to join) a franchise concept, remember that franchise tenants should make sure that their lease term matches their franchise term to avoid issues later with the lease running out too soon. This happens when the start date of the franchise agreement is prior to the start date of the lease agreement—which may be several months later, when the franchise business actually opens.
Pay attention to your own renewal option cut-off deadline and react accordingly. While you may have intended to continue leasing in your current location, your landlord may have other plans (your landlord may have found a replacement tenant to take over your space and may increase your rent dramatically to effectively nudge you to move out and vacate the space). In this case, isn’t it better to know this bad news ahead of time? This isn’t always the case; however, it is something for commercial tenants to think about.
Timing can also be a factor if you don’t have a renewal option and want to stay where you are currently leasing. If you don’t show any interest in moving, your landlord could take advantage of this situation, perhaps by increasing your monthly rent. And, if you wait too long before approaching your landlord, you will have less time available to you to move, if that becomes necessary.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Willerton and Grandfield are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com, or visit www.TheLeaseCoach.com.