Negotiating a commercial lease can be an intimidating process due to all of the unknowns you may encounter. Fortunately, there are ways to figure out how much you should expect to pay and how to establish the best long term deal without sacrificing too much time and energy. Here are our top 3 strategies for negotiating a commercial lease.
Negotiating a Commercial Lease - 3 Strategies that Will Save You Money
1. Get Formulaic
Well, you might not want to get entirely formulaic but you will want a quality formula that will help you determine whether or not your lease is actually worth it long-term. Most first-time business owners who choose to represent themselves will try to get the lowest monthly rent payment possible (which is a mistake). Negotiating a commercial lease is about getting the best total value, not the lowest monthly payment.
To calculate the total value of your lease, take the annual rent and multiply it by the lease term (which will determine the annual cost). Then take the annual cost, subtract the free rent and subtract tenant improvement capital (the money the landlord is giving you to improve the space) and you will arrive at the real total cost.
2. Don’t Forget to Get Creative
While a formula may help you determine the cheapest long-term lease that does not mean the negotiation is over. No, it means it is time to determine how to best pay for your lease. Let’s say you are a small business and you don’t have the financial power right now to comfortably afford your rent payment. In this case, you may want to consider backloading your lease. It will make the start of your term much cheaper while making the end of the term more expensive (a good strategy for any business that expects to grow right out of the gate). There are plenty of other ways to get creative while negotiating a commercial lease. Just be sure to make the creative decision that is best for your business.
3. Go Low
It’s much easier to negotiate rent for a residential apartment because you know (roughly) how much said apartment, in said neighborhood will cost. Negotiating a commercial lease is a bit like flying at night with no instruments. Needless to say it can be nearly impossible to estimate value. The safest strategy is to get a list of recent deals (around the building you’re interested in) from a broker. This will give you some idea of how much you will end up paying. Keep your bid low (but within reason) and try to impress the landlord with your personality. A smile and being polite can go a long way.
These three strategies should help you find a favorable deal as you begin negotiating a commercial lease. Just remember to have a formula to help determine the total cost of the lease, get creative with payment options and keep your bid low (but still within the playing field). Best of luck!