How Much Leverage Do You Have?
A commercial lease negotiation is like any other negotiation – there is some “give and take” involved. The amount of “giving” that you, as a tenant, may need to do is based on the following factors:
1) How much leverage you have as a potential tenant (i.e., how badly the landlord wants to have you lease its property) and
2) How well you recognize (and successfully modify) those provisions in the lease that do not operate in your favor.
So, in determining how flexible you will be in the negotiation, you must know both your value as a tenant and what the lease would require of you. If the landlord is eager to have you as a tenant, you will, obviously, have more bargaining power. If your business is one that is likely to draw significant traffic or the type of clientele that the landlord desires, the landlord will be much more inclined to work with you in establishing lease terms.
If, on the other hand, your business is not one in which the landlord has a very strong desire to have in its space, the landlord will be inclined to stick as closely as possible to its standard lease provisions. The vast majority of the time, those standard lease provisions are going to be in the landlord’s favor. In determining whether to negotiate modifications of certain language presented to you in the lease, you must either understand the lease language or hire professionals (like us!) to help you understand the lease language. If, for example, you have been told that the lease will be a net lease with monthly rent of $2,500, you may not realize that the $2,500 is the minimum amount you pay. There will be a slew of other charges for which you would be responsible (e.g., common area maintenance, taxes, insurance, marketing), which could easily make your monthly expense several hundreds of dollars more than what you might expect.
When you approach your lease negotiation, have a realistic view of your own bargaining power. That will serve as a gauge for you in knowing where you’re willing to be flexible and where you are not. We’ll talk about specific lease provisions in Part II.