Commercial Leasing Tips and Techniques
As we emphasize in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, the leasing process is not a simple task.
The importance of time, timelines, and timing
As we emphasize in our new book, NegotiatingCommercial Leases & RenewalsFOR DUMMIES, the leasingprocess is not a simple task. Considering thenumber of steps involved and potential hurdles,properly planning and allowing ampletime can save commercial tenants aggravationand—more importantly—money.
One common mistake commercial tenantscan make is agreeing to terms too quickly withthe real estate agent. We routinely hear fromfrustrated tenants who signed too hastily andrealize after the fact that they may have madea mistake. While they do good work, agentswork for the commercial landlord (ratherthan the tenant) and they will often push aprospective tenant to lease a unit that may notbe the best choice (it may be too large or tooexpensive). The long-term success of the commercialtenant is of little importance to theagent—the agent’s motivation will often be apromised commission from the landlord (andthat commission will typically increase whenthe tenant leases more commercial space andleases for more years). It’s not uncommon forpotential tenants to receive a call from theagent saying that someone else is looking atthe space that they looked at last week, pressuringbusiness owners to “hurry up andsign.” Don’t let things like that sway you: goyour own speed and get it done right.
As a business owner, you will want to devoteyour time to doing what you enjoy andwhat is best for your business. Smart entrepreneursoften realize that they cannot accomplisheverything that needs to be done,so they hire outside professionals (lawyers,accountants) to help them. Considering theamount of work involved with your owncommercial lease, it can be worthwhile to usea professional lease consultant to ensure thatyou get a better—and fairer—lease deal withthe landlord. For the best results, everythingthat needs to be done before signing a leasecan 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 documentsfor deadlines and note these conspicuously.It may be possible to adjust these deadlinesdepending on the circumstances. Youmay find that some steps (getting financing inorder or having a contractor inspect the commercialspace) are beyond your control andyou will need more time to get everything inorder. While you could keep extending yourcondition periods by several days with yourlandlord, it is often better to simply ask for alonger condition period (perhaps twenty orthirty days) to ensure everything can be done.
New business owners need to keep in mindthat timing will play a vital part when theirlease renewal comes due. It is not unrealisticfor commercial tenants to begin their leaserenewal process twelve to fifteen months priorto their lease expiration date. More precisely,look at your renewal option clause. Ifthis says your cut-off date for exercising yourlease renewal is six months before your leaseexpires, you would need to start the renewalprocess six months before that, or a total oftwelve months in advance.
If you have joined (or plan to join) a franchiseconcept, remember that franchise tenantsshould make sure that their lease termmatches their franchise term to avoid issueslater with the lease running out too soon. Thishappens when the start date of the franchiseagreement is prior to the start date of the leaseagreement—which may be several months later,when the franchise business actually opens.
Become an Industry Sponsor
Pay attention to your own renewal optioncut-off deadline and react accordingly. Whileyou may have intended to continue leasingin your current location, your landlord mayhave other plans (your landlord may havefound a replacement tenant to take over yourspace and may increase your rent dramaticallyto effectively nudge you to move out andvacate the space). In this case, isn’t it better toknow this bad news ahead of time? This isn’talways the case; however, it is something forcommercial tenants to think about.
Timing can also be a factor if you don’thave a renewal option and want to stay whereyou are currently leasing. If you don’t showany interest in moving, your landlord couldtake advantage of this situation, perhaps byincreasing your monthly rent. And, if youwait too long before approaching your landlord,you will have less time available to youto move, if that becomes necessary.
Dale Willerton and Jeff Grandfield -The Lease Coach are Commercial LeaseConsultants who work exclusively fortenants. Willerton and Grandfield areprofessional speakers and co-authorsof Negotiating Commercial Leases &Renewals FOR DUMMIES (Wiley, 2013).Got a leasing question? Need help withyour new lease or renewal? Call 1-800-738-9202, e-mail [email protected], or visit www.TheLeaseCoach.com.