Five Tips for Negotiating a Favorable Commercial Lease
The first copy of your lease will likely be completely skewed in favor of the landlord, but don’t be discouraged. Many clauses in a lease can be negotiated so that they are fair to both you and the landlord. Here are some tips for negotiating a favorable lease:
1. Lease Term: The term of your lease and the rent you will pay is your first negotiation point. Your goal is not to over-commit while giving yourself some flexibility for the long term. Sometimes the space you are leasing can be more valuable than the business you run in that space (e.g., space in Pike Place Market), so you may want to encumber the space as long as you can and negotiate an option to sublease or assign as it may be more valuable to you in the long run.
2. Define Use: If you want the option to sublease or assign your lease, then you need to make sure the definition of “use” of the space is in your favor. It is important to define use as vaguely as possible as you don’t want to be restricted to like-kind use. If your landlord has an issue with a broad definition of use, then agree to carve out exactly what the landlord wants and does not want in the space (e.g., must be a local business, no liquor stores, no smoke shops, etc.).
3. Tenant Improvements: If you are thinking about entering into a lease for new construction, make sure you look at the “shell condition” and determine what exactly is being delivered to you. Then take a look at your own costs and make sure you can afford any necessary additions. It may be less costly (and less stressful) for you to find an existing project or business and adapt to that space rather than building out a new space.
4. Default: Discuss upfront what will happen if you default. Determine whether you’d be locked out immediately, if the landlord will initiate eviction proceedings, and whether you can negotiate more time for yourself should you default. Landlords can be sensitive when discussing default terms, so this may be the time to tell the landlord “my attorney told me to discuss this.”
5. Guidelines: Before you sign the lease, make sure you check your local guidelines, such as City Code or Historical Commission Guidelines, which may apply to the space. These guidelines (like signage restrictions and required hours of operation) are typically non-negotiable and may be burdensome to your business.