Understanding the Ins and Outs of Lease Negotiations
Every retail business, if it is not being run solely on the Internet, needs a physical space where it can sell its wares or services. In most cases, this space is rented. Having a basic understanding of the business lease process and how to negotiate a lease will help ensure that you get the space you need at a price your business can afford.
Here is what you need to know about business leases and some tips to help you negotiate a lease that works in your favor.
Basic Business Lease FAQs
What Is the Basic Rental Term?
Most retail business leases are designed to cover a specific time period. Traditionally, this time period is three months, but this can be negotiated.
What Is the Basic Rental Rate?
Property leasing companies usually charge a certain amount per square foot and this usually ranges between $.90 and $3 per square foot. In some situations, the leasing company may charge a percentage of the lessee’s gross sales instead of a per square foot charge. In this case, the typical amount is 6% of the gross monthly sales.
Who Is Responsible for the Utilities?
In most leasing contracts, the water and sewage are usually included in the monthly lease price. Other utilities such as gas, electric, cable, Internet service, and trash removal are usually the responsibility of the lessee.
Who Is Responsible for Property Maintenance?
In most lease agreements, the lessee is responsible for maintaining all of the equipment that services the leased space, including all electrical, air conditioning, plumbing, heating, and structural components. Common area maintenance is usually paid for by the lessee in their monthly lease payment but managed by the property owner.
What Is a Triple Net?
The Triple Net is a monthly charge that covers three core expenses – taxes, insurance, and common area maintenance.
How Much Security Deposit Is Required on a Business Lease?
A security deposit is not always required on a business lease, but in some cases, the lessor can request two months’ rent.
Tips for Negotiating a Better Lease
If you are not especially good at the art of negotiating, then you may want to consider hiring a leasing agent to manage that side of things. But, before you start negotiations on a certain space, it is important to have something to compare it to. Always do your research and find at least two different places that meet your business’s needs.
Never accept a lease agreement without first having an attorney read it over. Many lessors will try and rush you into signing the agreement and if you are not careful, you could be signing away more than you bargained for. If the lessor presents an agreement to you, make a counter-offer in writing and address those things that will benefit your business, such as:
- A lower rental rate
- Limits on Triple Net charges
- Inclusion of certain utilities in the monthly rate
- An escape clause that will allow you to legally break the lease early in certain situations
- A reduced or waived security deposit
- Free rent for a certain period of time based on market conditions
Understand that the lessor will most likely not agree with all of your terms, but including them will give you a starting point and you will probably be able to get at least some of them included in the final agreement. It will also help you if your lessor knows you are also considering other offers. This knowledge may coerce them into accepting more of your demands so they are not left with an empty space.
Once your negotiations are finished and you are left with your final offers, then you can accept the space and the lease that best meets all of your needs.
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