Proper Negotiation of a Commercial Lease in Real Estate Law

The real estate attorneys at Elzufon Austin Tarlov & Mondell offer insight to consider when researching or negotiating a commercial lease. 

It is important to understand commercial leases and all that they entail when exploring properties or discussing a contract.

Contracts are binding, and can potentially represent substantial costs if the lease must be broken because homework was not done beforehand. Not only are they binding, but there is a lack of consumer protection regulations. Commercial leases are not subject to the same consumer protection laws that oversee residential leases, and issues of privacy and usage restrictions must be evaluated. There are also no standard forms, and each commercial lease is typically tailored to the individual needs of the landlord, not the renter. That is not to say that the renter should simply accept those conditions at face value. Leases should be negotiated, and professional counsel should be used to assist in that process when needed.

There are several factors that need to be fully understood when discussing the details of a commercial lease.

The Estate Itself
Location of the property is non-negotiable yet it affects the bargaining power of the potential tenant immensely. Two properties can both be located in Wilmington, Delaware, but be in completely different neighborhoods. Hip and trendy neighborhoods such as Rohoboth Beach command a higher price than properties in a cold real estate market. Thus, there will be less bargaining leverage for likely tenants. Prime rental spaces, on the other hand, could make negotiations easier for the landlord/s.

Length of the Lease
As mentioned before, breaking a lease can have serious repercussions and/or loss of money. However, it is important to understand the business’ growing potential and nature of the industry.

Commercial landlords often chose shorter leases for start-up companies that may seem risky to invest money/time into as long-term tenants. Franchises may prefer longer leases that match their franchise agreement. Owners of the business should think about negotiating a cap on the fees if they plan on signing a long-term lease.

Reduced Rent as an Option
When renters are moving in or moving out, it is important to negotiate a reduced rent option in compensation for moving costs. Rent for commercial properties is usually by the year and advertised on a square foot basis cost. Business owners normally aim for a rent that is less than 10% of gross revenues.

The percentage of gross revenues can be negotiated to begin after the renter has hit their sales figures for several consecutive months. Check the periodic rent increases to ensure you are up-to-date throughout.

Know who is responsible in paying for air conditioning, electric lighting water, janitorial service, or anything to keep the facility up to condition standards. If you have employees that work late hours, make sure that there is no extra charge for keeping the facility up and running.

Remember that certain amenities may not come with the lease package. These include kitchens, conference rooms and break rooms.

Contact a real estate or business lawyer at Elzufon Austin & Mondell, P.A. in Wilmington, DE to assist you in negotiating a commercial lease and preparing all documents necessary.

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