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Negotiating a Commercial Lease

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How to Negotiate a Commercial Lease

You have found what you think is the perfect space for your new business. And you are ready to sit down and talk to the landlord. Here is a list of the items you need to talk about.

  • Basic Lease Cost
    The first item of business usually is the cost of the lease itself. Lease costs are determined in two steps:
    1. The monthly cost is determined by multiplying the square footage by the cost per square foot, which gives you the annual cost, then dividing by 12 for the monthly cost. For an office space of 4000 square feet at $35 a square foot, the monthly cost would be $11,667.

    2. Then the common area maintenance (CAM) costs are added on. If you are leasing a portion of a building or stip area, the CAM costs are those "general" building areas like walkways, driveways, hallways, and, in some cases, restrooms.

  • What is Included in the Lease
    Next is the discussion of what is included in the lease. In some cases, the landlord will assume these costs; in other cases, the landlord will want to pay these costs and pass them on to you. You will ultimately have to pay these costs; it's just a question of paying them yourself or having the landlord pay them. In most cases, you will have to accept the way the landlord has structured the lease. These costs are:
    • Property taxes (pro-rated on the percentage of the building included in the leased space)
    • Snow removal, lawn mowing, and landscaping
    • Driveway, sidewalk, parking lot repairs and maintenance
    • Utitities (electricity, gaas, sewer, water)
    • Refuse collection
    • Insurance on the property (pro-rated among the tenants)
    • Structural and roof repairs and replacements
    • Non-structural repairs and maintenance
    • Mechanical system repairs, maintenance, and replacements
    The landlord will tell you how many of these items are included in the lease payment, and how many you will need to pay yourself. Terms like "gross lease" and "triple net" lease will be discussed. Although these are common terms, be sure you ask, "What is included?" Your landlord may have a different understanding of these terms.

  • Repairs and Improvements
    Unless someone with a business exactly like yours was the previous tenant, you will need to have some changes made to the leased space before you can occupy it. There may also need to be repairs made or painting done to make the space acceptable to you. If you can do these repairs or improvement yourself (with the help of family or friends), you may be able to get them done more inexpensively. In many cases, though, the landlord wants a contractor to do the work. Who will pay for this work is an important question that needs to be negotiated.

  • Term of the Lease
    Next is the discussion of the term of the lease. Landlords like long-term tenants, so the longer the lease you will accept, the more concessions you may be able to negotiate in terms of build-out or other costs.

  • Other Aspects of the Lease
    Your discussion with the landlord should include questions about other aspects of the lease, like restrictions on signage and sub-leasing. Before you sign the lease, review the document with an attorney to be sure that you understand everything and that you are getting into.

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