How to Negotiate Rent on Commercial Spaces

When it comes to finding a lease there will be several things on your mind; location, size, affordability, and condition to name a few. But, when it comes to renting out commercial spaces the affordability factor becomes a much more important thing to consider. The fact of the matter is that you need to understand not only how much the rent is, but all of the other costs involved in running a commercial space as well. It can quickly mount up.

This is why, when it comes to a commercial lease, negotiation is a key factor and something you should consider doing. As, if successful, you can easily assure a much safer financial setting for yourself.

So, with that in mind, here are the key ways to ensure you get a good rate when negotiating rent for your commercial space:

What is a Commercial Rental Lease?

A commercial lease is a formal, legally binding, rental agreement between your business and a landlord. The commercial lease is something that allows you to use a space for business activity in return for money.

What is the Difference from a Private Lease?

When it comes to setting up a lease, there is a difference between a private tenant lease and one taken out by a company. The underlying foundation of both is fairly simple: the exchange of money for the use of a property for a set period of time. But, there tends to be much more flexibility and less government-enforced protections for a commercial tenancy. A business tenant is expected to take on much more responsibility and have a higher understanding, especially in comparison to first-time renters, for example.

For this reason, a commercial tenancy is more likely to be negotiable in terms of renting prices and terms. As it is more of a business arrangement than a regular residential lease is set out to be.

Things to Look Out For

Some of the biggest factors when it comes to commercial leases that are important to be aware of are the factors that can affect rent… or may mean financial payouts at a later date. This includes factors such as:

  • Rent Reviews – these can quickly raise the price of your rent and perhaps make the lease completely unaffordable. If you have a rent freeze clause for several years, it is important to know when the review is expected, as you can then determine your financial standing before the increase.
  • Underletting – sometimes a commercial lease doesn’t always work out. Not all businesses last beyond their first two years or so. It’s important to understand if you have options in case this happens. A good choice would be to underlet the space to a different company. But, beware–you are still liable even when you underlet!
  • Breaking the Lease – in some instances, ending a commercial lease early may be necessary. To protect your business you should always try to ensure there is a break clause that will allow you to break the lease early. This can save you financially, as otherwise you would be held liable for rent until the very end of the lease.

It is important to understand these terms and know the financial implications.

Tips for Negotiating your Commercial Rent

Once you understand the basics of a commercial lease, it is then a simple case of actually negotiating it. This can be quite a long process and you are not always guaranteed success. But, if you do manage to secure a reduced rate it can be incredibly beneficial to your long-term business finances.

  • Understand the costs and try to research the area. If the rent seems a little steep in comparison to the competition, then mention it – you may get a discounted rate to match the market!
  • Get a professional opinion. At the end of the day, you won’t find the best rate unless you involve a professional expert to advise on the issue.
  • Do not agree to pay legal fees for both parties, as the landlord should be able to cover their own costs.
  • Understand the extent of the reparation clause in your agreement and what this means for you from a monetary standpoint. Don’t immediately agree to fix everything at the end of your tenancy, as this could mean much more than you expect!
  • There may be some different ways that a landlord may wish to entice you to rent with them. So, ensure you ask about any potential inducements (it may not be money, but it could be a sweet deal).

When it comes to a commercial lease, assume everything is up for negotiation if you have certain needs or want something slightly different. As a tenant, the negotiation process is almost always in your favor so it’s a good position to be in. But, if you feel unsure or unable to negotiate, you can always get someone on your side to help/do it for you.

In these cases, you will end up paying for their expertise. So remember to weigh out their costs vs. the savings you are achieving to determine if it is worthwhile or not.

Final Thoughts

Overall, when you are starting or moving a business into its first official commercial space, it’s important to be aware of your position and how best to take advantage of it. Especially when negotiating your lease, as it could mean a great deal of savings/benefits for your small business.

Guest Post: About the Author

Natalie Wilson is a freelance writer for a number of different business publications. With a range of knowledge in the business and insurance sector, she is an avid researcher and writer in the commercial property valuation field. Natalie is now a freelance writer looking to specialize in the topic. You can connect with her on Twitter.

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