Tips on Negotiating the Commercial Lease
- Conduct Due Diligence. As the end of your lease nears or as you look for new space, conduct due diligence. Do not fixate on one site alone, research comparable sites in the neighborhood so you are prepared to show your landlord the market costs of neighborhood sites. Multiple site selection and evaluation will give you power to negotiate the lease in your favor.
- Negotiate the Lease. Do not sign where the broker and landlord tells you without carefully reviewing the lease. Understand and review your lease (often if you are an existing tenant). Do not wait too long to negotiate your lease, successful tenants start negotiations up to a year in advance to get a better lease deal.
When negotiating a lease, make sure it includes contingencies for all the uncertainties in the permit process. In particular, make sure that you do not release your contingencies until you have secured your permits. You want to avoid a situation where you enter into a lease assuming that you will get your permits and then for some reason they are not approved or are delayed in being approved.
- Understand the Lease Clauses. There are more important clauses that impact your business besides the cost of the monthly lease. For example, the assignment clause allows the landlord to dictate whether you can sell or lease your business. Other important clauses include how rent is calculated and quoted, the term of the lease, the start date of the lease, and what happens when the landlord decides to sell the property.
To protect your option for change with the least downside, you should secure an initial lease term with options to extend. You should also secure a lease with the ability to transfer to another owner if your business goes under. Statistics show that it is within the first 3-5 years after start-up that most businesses face financial trouble and sometimes fail or are sold. Planning an exit strategy will help you to re-coup part or all of your startup costs.
- Be Active in the Community. Take time to talk with neighboring merchants and consider joining a local merchant association. Do not underestimate the power of community support.
Small Business Assistance Center, City Hall, Room 110, 1 Dr. Carlton B. Goodlett Place, San Francisco, CA 94102
Phone: 415-554-6134 Office Hours: M-F 8 AM - 5 PM