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6 items to negotiate in your commercial lease

| May 28, 2021 | Commercial Real Estate

Finding a commercial property that meets the needs of your business may take months or even years. Once you have completed your due diligence and found the perfect commercial property, your next step is to review, negotiate and sign a lease. Yes, negotiating is a step many business owners do not realize they have a right to.

It may seem like the terms of a commercial lease are set in stone, but it is wise to review and discuss with your potential landlord any items in your lease that may cause concern. After all, once you sign, the agreement may lock you in, perhaps for years. You want to be sure you are taking the plunge with your eyes open.

Does the lease answer these questions?

The first thing to know is what kind of lease you are signing. A full-service lease holds your landlord responsible for the expenses of the building, and you pay rent only for your unit. Rent for a net lease, on the other hand, includes your unit’s share of expenses for utilities, insurance, taxes and other items. Your lease may also be a hybrid of these two. Therefore, you may want to discuss the following questions with your landlord:

  • How can you lower your share of costs for grounds maintenance, parking, upkeep for common areas, security and other expenses included in your rent?
  • How long will you be locked into the terms of the lease, and will a longer term result in lower rent?
  • What are the terms for renewing or declaring your intention not to renew your lease?
  • Will the lease permit you to make improvements in the unit?
  • Who pays for the improvements, and who owns them when your lease expires?
  • What kind of insurance coverage does your landlord carry, and what does the lease oblige you to carry?

You will also want to understand the process and penalties for breaking the lease. Obviously, this is not something you expect to do, but in the uncertain business world, you do not want to be surprised by a huge payout. You may be able to negotiate with your landlord to include a break clause or the option for transferring your lease to another business owner as a safeguard against this unfortunate possibility. With more favorable terms in your lease, you can focus on the success of your business.