In the past, it was up to commercial real estate brokers to negotiate lease terms in commercial real estate deals. While some tenants and landlords found relief in placing these details in the hands of a third party, many have experienced frustrations when dealing with a middleman. For instance, letting a broker drive the negotiations can extend waiting periods and leave both tenants and landlords hanging. Not to mention, most brokers charge hefty fees that amount to a high cost-to-work ratio.
We’re putting the power back into the hands of tenants and landlords by cutting out the middleman. Now that tenants and landlords have an avenue to discuss lease terms directly and seek spaces and tenants that fit their needs, we thought we’d share some best practices for lease negotiations.
1. Don’t be afraid to ask
In almost every case, both tenants and landlords have their non-negotiables — but for every must-have, there’s wiggle room in another aspect of the lease.
Be honest and open throughout the negotiation process about what’s important to you and what you’d like to see change. Enter the negotiations with your wishlist already drawn up and prioritized.
Whether it be more favorable clauses, shifting the length of the lease, or asking the other party to shoulder a certain cost, be prepared to ask those questions. Any reasonable and professional person will be more than happy to address those concerns and reach a mutually beneficial agreement. And if you receive a response you don’t think is fair — or even polite — it’s probably a sign that that partnership was never meant to be.
2. Set termination clause and “worst-case scenario” measures
COVID-19 revealed that if anything is certain in the future, it’s that we have to prepare for unfavorable situations. Whether these arise due to internal issues or factors outside of the control of tenants and landlords, prepare for these scenarios by establishing a procedure in a lease. As for tenants, read the termination clause closely and ask for clarification and adjustments when necessary. Both parties should go about these negotiations with the goal of mutual protection in case of an emergency or bankruptcy.
3. Learn about typical lease terms and clauses
Businesses almost always benefit from clauses like those that allow a tenant to sublease in case of relocation or closure, prevent similar businesses from renting other units on the premises, or require landlords to make improvements to the space prior to moving in. Landlords should be aware of these favorable clauses as well and prepare to discuss such measures with potential tenants. This mutual knowledge will help the negotiation process move along smoothly and assist both parties in deciding which aspects of the lease matter most to them.
4. Be timely with responses while discussing lease terms
Without a middleman, lease negotiations will take less time to organize. However, they may very well take longer than you first expect. Be courteous with the other party, don’t procrastinate on responding. Exercise promptness when reviewing drafted terms and other important information. Not only will this help move the process along in a timely fashion, but it will set the tone for a mutually beneficial relationship between landlord and tenant. Time is valuable, especially when both parties cannot begin to make money until a lease is signed and payments are made.
5. Double-check anything and everything
Don’t let a lease agreement turn sour, simply because you didn’t do your homework. Study the lease terms carefully at every step in the negotiation process. You never want to rush into a lease that will come back to bite you down the road. Take your time, ask questions, and pay attention to every detail.
6. Assess your compatibility with a potential landlord or tenant
The negotiation process can reveal a lot about how the relationship between a tenant and landlord will play out during a lease. If you find the other party offputting, discourteous, or flat-out rude, the appeal of their business or space might not outweigh that unfavorable relationship. Signing for or leasing out a commercial real estate space is a huge decision with a lot of cash hanging in the balance. If your gut is telling you that you’re not compatible with the other party, it may be a sign that you should look elsewhere.
Commercial Real Estate Lease Terms Takeaway
The future of a thriving commercial real estate industry necessitates healthy, mutually beneficial relationships between landlords and tenants. Both parties must focus on using these agreements and discussions to form a strong partnership, not feelings of resentment. Open, courteous, and educated negotiation practices can help make this goal a reality. Putting the negotiations in the hands of landlords and tenants by cutting out commercial real estate brokers shouldn’t summon uncertainty. Rather, these discussions represent an opportunity to create more intimate and positive relationships in the commercial real estate space.
At REDHANDED, it’s our mission to directly connect tenants and landlords, reinvent the face of commercial real estate, and ensure a better future for business owners. Browse available spaces and promote your own on our website today.
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