Whether you’re new to property investment or you’ve invested in residential properties in the past and are now ready to buy a commercial property, this guide will give you an overview of the differences between the two types of investments.
How to Negotiate a Commercial Lease
How long will it take to negotiate a commercial lease?
Negotiating a commercial lease can take weeks or months, by anticipating this you can avoid putting yourself under pressure to sign a commercial lease before you’re satisfied with the terms.
Not only could there be several back-and-forths on the terms of the lease and the cost of rent, but properly reviewing the offers and contracts will also be time-consuming.
Then you will need to seek professional financial and legal advice on the terms of the lease. This is something we highly recommend, and we’ll speak about in more detail later, but will also take time as your advisors do their due diligence by examining the commercial lease agreement and explain the business liabilities to you.
What is negotiable in a commercial lease?
Essentially, everything is on the table for discussion when negotiating a commercial lease. Before negotiating consider what you want and what you’re willing to give up to get it.
There may be some terms that aren’t important to you but could be to the other party. Review the list below for some ideas and figure out what you need for each:
- Length of the lease
- Options to renew
- Rent reviews
- Permitted use
- Tenancy mix and competition
- Fixtures and fit-out
- Operating costs
- Repairs and maintenance
- Assignment and sub-leasing
- Default and breaches
- Redevelopment and relocation
Get professional commercial lease advice
We can’t stress enough that you should seek professional legal, financial, and business advice before signing a commercial lease.
- There may be terms in the lease that you don’t fully understand or comprehend the ramifications of. You mustn’t commit to something you don’t understand.
- Signing a commercial lease will directly impact your business. Your outgoing costs will change, as will your liabilities and responsibilities.
- You are taking on a financial obligation that could last years. Getting professional financial advice will help you predict if you’re able to meet the commitment.
- By signing a commercial lease, you’re entering a legal binding contract. A legal advisor will explain the consequences of breaking the terms of the lease, by either party.
- Learn what you’re rights are in case yours or the other party’s situation changes, you’ll know what you’re entitled to.
Get offers in writing
When negotiating a commercial lease, there can be several parties communicating offers and lease terms. This includes the prospective tenants, landlords, and the agents for either. With all the phone calls and conversations that could be happening, there may be a miscommunication that could impact the entire negotiation.
When you receive a verbal offer, ask for an email summarising the terms. This will avoid any last-minute surprises that weren’t mentioned, or if you decide to counteroffer, there will be a record of the exchange.
Understand the market
Spend as much time as possible researching the commercial property market, specifically looking for similar properties to the one you’re negotiating on.
Commercial lease prices are determined by the market and fluctuate year-to-year, even month-to-month. Don’t expect to pay much less than the market average, but you shouldn’t need to pay more unless there are other favourable terms in the lease.
To learn what you should expect to pay, look on commercial real estate websites and commercial agent websites to compare similar properties and calculate the cost per square metre. This will give you a ballpark price and something to negotiate with.
TIP: The longer a property has been on the market, the more likely an owner is to be flexible on commercial lease terms. If a property has been on the market a while, it usually indicates the owner overestimated the market price and could lead to a price reduction.
There’s more to a commercial lease than the rent
Rather than negotiating purely overly the price of rent, understand that there are other factors in a commercial lease that you can bring to the table.
Of course, landlords are looking to receive as much rent as possible but they’re also looking to keep their costs down. Understanding this will allow you to make counteroffers with more variables that can bridge the gap between their price and yours.
- Shorter settlement periods
- Rent-free periods
- Longer lease
- Lower fit-out costs
Always get something in return
It’s natural in commercial lease negotiations that you will have to concede on some points to bring the deal together. If you do this, try to get something in return for what you’re giving up.
If they’re at their final offer on the price of rent, suggest they pay for other property costs:
- Repairs and maintenance
Contact us about your commercial leasing needs
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