Negotiating and Drafting Tips for Commercial Leases

Leasing commercial space is one of the most significant financial commitments entrepreneurs will make, with significant implications for themselves (as guarantors) and their business. Negotiating and drafting a lease agreement can be a complex process, and it is essential to ensure that the terms of the lease protect your and your business’ interests as a tenant, and that you do whatever you can to limit your personal liability.

Understand Your Space, Location, and Growth Needs

Before you begin the negotiation process, it is essential to understand your business’ current and future needs. This includes factors such as:

The type or configuration of the space you need
The amount of space you need for your current operations
The amount of space you need for planned growth
The location and accessibility of the space
The duration of the lease, including options to extend the time of occupancy
The budget for rent and associated costs, and incremental increases
Any specific requirements related to the nature of your business

By having a clear understanding of your needs, you can negotiate effectively with the property owner and ensure that the terms are suitable for your business.

Research the Property and Landlord

Before entering into lease negotiations, it is crucial to research the property and the property owner, or landlord. This includes:

Visiting the property and assessing its suitability for your business needs
Checking the landlord’s reputation and track record with other tenants
Researching court records to see if the landlord sued prior tenants
Engaging a leasing agent to give you options and educate you on these options

Negotiate the Terms

The negotiation process is a critical step in securing a favorable lease agreement for your business. Key areas to focus on during negotiations include:

Negotiating a fair rent that aligns with the fair market rental value of the property and your business budget.
Negotiating a lease duration aligns with your business needs and provides flexibility to renew or terminate the lease as necessary
Clarifying the responsibilities for maintenance and repairs to ensure that the property remains in good condition and that any costs associated with repairs are reasonable.
Ensuring that the permitted use of the property aligns with your business needs and that any restrictions on use are reasonable.
Negotiating renewal options that provide flexibility for your business and enable you to extend the lease if necessary.
Negotiating a reasonable security deposit that aligns with the lease terms and your budget
Negotiating away the need for a guaranty, and, if one is required, to limit the guaranty

Negotiate and Draft the Lease Agreement to be Executed

Once you have negotiated the key terms of the lease, it is essential to draft a lease agreement that protects your interests as a tenant. Leases include many terms, and all of them are negotiable. Never agree to the draft proposal from the landlord without reviewing and analyzing the draft in detail, and having a lawyers redline it. Some terms to look for and analyze carefully are:

Duration of the tenancy
Base rent
Security Deposit amount
Annual increases in rental costs
Penalties and late fees
Additional rent, such as taxes, CAM, etc…
Taxes
Default terms and conditions
Tenant Improvements
Landlord’s Improvements
ADA compliance terms
Options to renew
Force Majeure terms
Guaranty terms

Seek Legal Advice

Commercial lease agreements are complex documents, which have legal, financial and other obligations. Therefore, it is important to seek legal advice to ensure that the terms of the lease protect your interests and that you are being treated fairly. A lawyer with experience negotiating can help you understand the process, and help you protect your and your business interests.

For more information or get help with your commercial lease, please call Private Corporate Counsel at 407-647-7887 or email us at info@pcc.law to talk to a business lawyer today. Private Corporate Counsel can help you negotiate your business’ next commercial lease or renew your existing lease.