Five Things to Negotiate in Your Next Lease
Negotiating concessions in a commercial lease transaction is largely about tailoring some of the monetary aspects of the deal to fit the needs of your business and increase your profitability. Work with your real estate advisor to map out your objectives and priorities so you have a clear understanding of what you want to accomplish with your new space or your renewal strategy. As much as possible, bring your broker inside your business so they have a full understanding of your budget and growth strategy. A 360-degree view of your business will help them in every aspect of the transaction.
Here are 5 things to consider when negotiating a concession package with your current or future landlord. Securing market-driven concessions from a landlord can greatly impact the early success of a start business or greatly impact the bottom line when renewing or relocating your business. It is important to remember that what is considered “market concessions” is different in each city and submarket and certainly in each product type. An experienced commercial real estate advisor will know what to ask for and how hard to advocate for you. So, when negotiating your next lease, it is essential to focus on the most important concessions that will benefit your business the most. Here are the top 5 concessions to prioritize:
1. Rent Abatement: Rent abatement is a concession where the landlord agrees to reduce or waive rent payments for a certain period of time. This concession can be extremely helpful, especially if you’re just starting out or if you’re dealing with expenses related to a relocation such as moving or new furniture. Negotiating for rent abatement can help create the foundation of your
business and start generating revenue. When negotiating for rent abatement, it’s important to determine the amount of rent reduction that aligns with your business needs and ensure that the rent abatement period is long enough to make a significant impact in order for your business to get off the ground if its new or fall in line with what other landlords are offering at similar
2. Tenant Improvement Allowance: A tenant improvement allowance is a concession where the landlord agrees to cover the costs of improvements to the leased space, such as painting, carpeting, or installing new fixtures. This can help you customize the space to fit your specific business needs which may be beneficial in the long run. When negotiating for a tenant improvement allowance, be sure to have a clear understanding of your space requirements and the actual cost of the improvements you want to make, so you can make necessary changes to the space. It might also be possible to negotiate a “turn-key buildout” where the tenant and landlord agree on the work to be done to the space and then the landlord is responsible to have the work completed, thus alleviating the tenant from the burden, distraction, and risk of completing the buildout.
3. Parking: Parking is often overlooked in lease negotiations, but it can also be a critical factor in the success of your business. Make sure to negotiate for enough parking spaces for employees and customers and ensure that the parking is convenient and accessible. If your business relies heavily on foot traffic, convenient parking can make all the difference for customer or employee
convenience. Negotiating for parking will also help you avoid potential disputes with neighboring businesses over parking spaces. If there is a cost to parking as is common in many urban centered office buildings, you might be able to negotiate on the monthly cost or for some amount of abatement to start.
4. Renewal Options: Renewal options are a concession where the landlord agrees to give you the option to renew your lease for an additional term. This concession can be a great way to secure your space and ensure that you have a stable location for your business. It’s important to negotiate for a reasonable number of renewal options and fair rental rates. Having the ability to renew your lease can allow you to focus on growing your business while having a peace of mind
that you can grow and expand in your building without having to move.
5. Moving Allowance: A moving allowance is a concession where the landlord provides financial assistance for your business to relocate to a new space. This can be especially helpful if you’re downsizing or looking to move to a new location. Negotiating for a moving allowance can help offset the costs of moving and ensure a smoother transition for your business. Often owners will allow you to use this allowance to also pay for new furniture for your office.
Remember to prioritize the ones that are most important and relevant to your business. Your landlord will have a budget for how much they will spend to win your business. Everything you are asking for from the landlord is coming from the same “pot of money.” Rent abatement, tenant improvement allowance, parking, renewal options, and moving allowance are all important concessions that can make a big difference in the success of your business. Don’t leave money on the table in your next negotiation. Hire an experience commercial real estate broker in your market. For a small business owner, every dollar counts!