Entrepreneur's commercial lease: tips for negotiation.

• Author: Grandfield, Jeff
• Position: REAL ESTATE

Small business owners typically pay a great deal of attention to marketing and managing their own companies; however, they often overlook the importance of their own commercial lease. The commercial lease, provided by the landlord, states the specifics of the agreed-upon lease (e.g. lease term, tenant inducements, monthly rent, etc.) and includes many additional clauses, many of which can--and should-be negotiated before the lease is signed.

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By successful negotiation, the commercial tenant can often benefit in a good number of ways. Granted, the lease can often be dry reading; however, it can dictate the success or failure of a business so a tenant needs to pay close attention to this document. We have outlined a number of tips for first-time (and existing) tenants to consider before signing their first lease (or their lease renewal) in our book, Negotiating Commercial Leases & Renewals FOR DUMMIES) and summarized several of these below:

Allow Sufficient Time: For a new location lease agreement, get started six to nine months in advance to avoid unexpected situations and delays. Lease renewal negotiations should begin between nine and twelve months before the lease term expires. As an existing tenant, if you can't get a decent renewal rate, would you rather find out you need to move with three weeks or six months left?

Never Just Accept the First Offer: Even if an offer seems reasonable or you have no idea what to negotiate for, never accept the leasing agent's first offer. More often than not, this first offer is inflated. Many agents use a strategy of starting negotiations at a higher rate that allows them to give in slightly. The Lease Coach frequently completes lease agreements at 15 to 25 percent less that the agent's opening offer (in one case, we negotiated the asking rate down from $8 per square foot to less than $3 per square foot),

Select the Best Lease Length: While a five-year lease term is still standard for many businesses (seven or ten years in some cases), it may not necessarily be the best term for you and your company. Three years, or even one year, for some tenants may be better if the cost for leasehold improvements is low enough since these are generally amortized over the life of a lease term. The agent-motivated by a greater commission paid by the landlord-will want you to sign the longest term possible; however, the landlord may be more flexible. Take the lease term that is best...