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Negotiating commercial leases

Editorial Team

6 min read
Female real estate agent sitting with a couple in an office while reading over a lease agreement with the couple.

Negotiating commercial leases can be a daunting but crucial step in securing a location that meets your business needs and budget. Whether you’re launching your first business or renegotiating a lease, these tips can give you the confidence to secure the location you need.

Read on for 8 tips to help you learn more about negotiating a commercial lease.

1. Review your business plan

Your business plan and needs, including where your business should be located in order to thrive, should be at the forefront of any lease decisions. Not every commercial space for rent will fit or can be tailored to fit your business, of course. Keeping your business plan front and center can help ensure alignment between your business goals and your operational decisions, like where to locate your business and the kind of facility it needs. 

If you’re renewing a lease, consider what this location offers in regard to your forecasted growth and revenue. Is your business growing more than anticipated? Does this location accommodate the rate of growth of your business? Is it time to consider a new location? The right location allows your business to evolve. Reflecting on the changing needs of your business and the rate of its growth can help point you to a best-fit location.

READ: How to find a good location for your business

2. Understand financing options

Businesses come with many operating expenses—leasing commercial space is one of the biggest. That’s why it’s important to understand the financial options you have as a business owner. Whether from venture capital or small business loans, funding can come in many shapes and sizes with many options available to finance your business location. With cost of living on the rise and commercial real estate interest predicted to stay elevated, now may be an opportune time to explore financing options.

READ: How to get a small business loan 

3. Know the structures of commercial leases

There are many kinds of commercial leases. Your business has unique needs that may require a specific type of lease. Here are a few common leases you may encounter when exploring the world of commercial real estate:

  • Sublease: A lease in which a tenant rents out a portion of their leased space to a subtenant. 
  • Gross lease: Involves the tenant paying a base rent each month for the space. The landlord is responsible for most expenses and maintenance costs.
  • Net lease: There are many types of net leases. However, the gist is that tenants pay a proportionate share of the building’s operating expenses, including common area maintenance fees, property taxes, and insurance.
  • Absolute lease: With an absolute lease, the tenant essentially owns the building without paying outright for it. The tenant pays base rent plus all building expenses and is responsible for all maintenance and repairs.

4. Get everything in writing

Two common mistakes many business owners make is to:

  1. Counter a lease offer before seeing the terms in writing 
  2. Agree to a verbal offer without reading all the terms in writing—especially the terms in fine-print. 

Never start a negotiation without knowing fully what‘s on the table. If a leasing agent explains terms verbally, ask for something in writing to review all subclauses, and check for any hidden costs. Without written terms, you could risk countering too high or too low—or agree to something you don’t quite understand. It may be helpful to have a lawyer look at the offer before making a decision on that lease.

It’s also important to save a hard copy of the final commercial rental agreement–many states even require leases over a specific amount to be in writing. So be sure to check the requirements for lease agreements in the state where the lease property is located. Having the terms in a written lease document that both you and your landlord can easily access can help prevent and/or clear up disputes over responsibilities or costs.

READ: Small business legal considerations-what small businesses should know

5. Counteroffer when necessary

As you learn how to negotiate a lease, never be afraid to counteroffer. Every time you negotiate or renew a lease, all terms are up for negotiation. Monthly rent is the most obvious clause to renegotiate, but it’s not the only one. If the location is a dream but the bathroom is a nightmare, for instance, try negotiating a much-needed bathroom transformation. If the rent is fair but the heating and air could use an upgrade, add the cost of HVAC repairs to your lease negotiations. Everything is negotiable. 

6. Consider what you offer 

Commercial lease agreements can be a win-win situation. Whether you’re signing your first commercial lease or negotiating a lease renewal, consider the value your business offers the landlord and bring that to the negotiation table. Are you known for prompt rent payments? Do you have a strong credit history? Do you take care of rental property? Does your business drive traffic for surrounding tenants? A landlord may be willing to concede more to a tenant who is responsible and respectful of the landlord’s own interests. 

READ: Access business credit scores and find funding for free with Nav

7. Look for insurance 

Hidden within the legalese of a commercial lease, you may find insurance clauses requiring you to carry extra coverage protecting the landlord against lawsuits. The problem is, many landlords use the same insurance coverage and require the same insurance costs for every tenant—regardless of business type. If you’re looking to maximize every penny your business spends, don’t hesitate to negotiate for coverage that makes sense for your business. Once the lease is signed, insurance costs become a fixed expense, so it’s important to address those costs upfront.

READ: What is small business insurance? 

8. Analyze arbitration and escalation clauses

Take a close look at the clauses within your commercial rental agreement. Each lease should address who is responsible for maintenance, repairs, and unexpected issues. Arbitration and escalation clauses lay out how disagreements will be handled should they arise. Does your lease agreement clarify how disagreements will be handled? Is a mediation process outlined, or do all disagreements end up in court per the lease contract? Also, double-check that the lease is enforceable in your state. If it’s governed by another state’s laws, you might need to hire an out-of-state lawyer if problems arise. Read every clause carefully to avoid unfortunate surprises later.

Negotiating a commercial lease is part of the business owner experience. It can be intimidating, yes, but it doesn’t have to be confusing. Keep in mind that you’re not alone. Whether through an innovative POS system designed for your business, integrated solutions like customer engagement, employee management, inventory management, or funding with Clover Capital, we’re here to help you find success in your new location. Learn how a Clover POS system can help your business thrive in its new location.

Disclaimer: The information provided above is for educational purposes only and does not constitute business, legal, or financial advice.

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Editorial Team

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Negotiating a commercial lease can be a daunting but crucial step in securing a location that meets your business needs and budget. Whether you're launching your first business or renegotiating a lease, these tips can give you the confidence to secure the location you need.

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