Negotiating commercial lease: Don’t give post-dated Cheques
For many commercial tenants, negotiating a good lease or lease renewal against an experienced agent or landlord can be a challenge. While an entrepreneur focuses on marketing and managing his own business, savvy real estate agents and brokers are specialized sales people. Their job is to sell tenants on leasing their location at the highest possible rental rate.
Tenants may go through the leasing process only two or three times in their entire lifetime — yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. Negotiating appropriate leasing terms is vital for a commercial tenant as the amount of rent he or she pays will directly affect the entrepreneur’s financial bottom line.
Whether you are leasing a new for the first time or negotiating a lease renewal for your business, here are some tips:
DON’T GIVE POST-DATED CHECKS:
One of the main jobs for a property manager is to collect the rent. Naturally, they will prefer to have post-dated checks. You may, however, not have the rent money until the third day of the month. Paying a few days late is better than bouncing a check.
By not providing post-dated checks, you can retain some control. It is often possible to modify this clause in the lease agreement or negotiate it out of the lease agreement entirely.
CATCH UP ON RENTAL ARREARS:
It’s not uncommon for a commercial tenant to find themselves behind in the rent. In this case, your landlord will very likely accept a repayment program that is more manageable for you.
The key is to go to your landlord before your landlord comes to you. It’s even possible to have your rental arrears partially or totally forgiven as part of the lease renewal inducement package depending on the individual situation.
Ask, ask, and ask again. You may be forced to pay interest, but that may be acceptable. Negotiate for a payment plan to catch up.
Related Article: 6 Tips for Finding the Right Commercial Property for Lease
ALLOW SUFFICIENT TIME:
For a new location lease agreement, get started six to nine months in advance to avoid unexpected situations and delays. Lease renewal negotiations should begin between nine and 12 months before the lease term expires. As an existing tenant, if you can’t get a decent renewal rate, would you rather find out you need to move with six weeks or six months left?
WHO SHOULD BE THE TENANT?:
Don’t enter into a lease agreement (or an offer to lease) under your personal name. This will make you personally liable for everything. Instead, form a corporation or a holding company that will become the tenant. If you are negotiating various locations but don’t intend to incorporate until a later date, then your offer to lease should state that the tenant is Your Name on behalf of a company to be incorporated (or Nominee). If you are opening multiple locations, it is often wise to form a new company for each lease agreement as further protection. Furthermore, corporations also have more tax benefits than sole proprietorship.
AVOIDING PERSONAL GUARANTEES:
It may sound oversimplified, but plainly saying “no” to personal guarantees will often be all it takes to avoid them. Too many tenants passively accept a guarantee because it was left to the end of the negotiations for discussion. If you are strongly opposed to guarantees, bring it right out in the open to begin with – before you invest several weeks on the deal. In most cases, a limited personal guarantee (which declines over the course of time) can be agreed upon – but should be equivalent to the tenant allowance of other up-front risks or expenses to the landlord and should not be unlimited. If you agree to a guarantee initially, your lease renewal negotiations are an excellent time to have this removed – after all, you are a proven tenant at this stage.
NEGOTIATE ALL LEASE TERMS AT ONCE:
Resist the urge to look at your lease as a list of individual points that must be all negotiated separately. All the business terms are connected and must be negotiated collectively. For example, don’t agree to the rental rate until you agree to the length of the lease term.
Related Article: 5 Tips for Negotiating a Commercial Lease
BE PREPARED TO WALK AWAY:
Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions … tenant or landlord. Developing a mindset that includes walking away from any deal that doesn’t suit your needs will save you time, aggravation and money.
In short, when you do your research, go in calmly, and get the best support, commercial lease negotiations can actually be fun. You don’t have to make these colossal mistakes. Instead, you can get a lease deal that supports your company’s good health.
I always try to make articles more useful, so that people can implement these ideas or tips in real life.
I, at Ground 5, selling & negotiating property deals on daily basis, I would be happy to answer your question related to selling a property. Please drop your questions or comments about this article in comment section below.
Related Article: 5 Mistakes Small Businesses Make When Leasing Office Space
Related Article: 9 Benefits of Hiring a Commercial Real Estate Agent