Commercial / Industrial

Negotiations begin when the landlord presents you with a draft lease. Read it, ask questions, and request changes, deletions or additions before you sign. Never sign unless you have read the entire lease.

Before you begin the negotiations, list rental priorities and terms on which you are flexible. Each clause has an associated value, and some will be more valuable to you than others.  For example, if you want a gross lease in order to know your monthly expenses in advance, and the landlord is willing to give you one, be prepared to make concessions in other areas. Because this clause has some value to you, maybe paying a higher rent or signing a longer lease are points you can use as leverage during negotiations.

The draft lease might go back and forth between you and the landlord several times, with changes made on each occasion. Your real estate agent and/or attorney will be very helpful in the negotiation process. If you have undertaken a thorough search, and know market values, you will know when you have reached a fair deal.

Unfortunately, not all lease negotiations work out. If you cannot reach an agreement within your budget, or with clauses that meet your needs, be prepared to walk away from the space. Find an alternative space that can work as a back-up: Knowing that you have other options will give you confidence during negotiations.

Below are questions to ask your potential landlord when reviewing the space. Note the replies. When reviewing the draft lease, make sure that the landlord’s verbal answers are consistent with what is written. Depending on the complexity of your lease,  get assistance from your attorney or real estate agent (at the very least).

• What uses will the landlord allow or not allow in the building? This gives you a sense of the other users. If the landlord wants no noise, and you are a pianist, you need to consider whether the space is appropriate for your use. Likewise, if you are considering living in the space, and the landlord specifies no residential use, keep on looking.
• Who is obligated to maintain the premises and repair damage? You don't want to be responsible for damage caused prior to your tenancy.
• Financial questions to ask:
  
  • What is the rent?
  • Is this a gross or net figure?
  • Who is responsible for property taxes, utilities and other charges? If it is the tenant, what are the additional charges above and beyond the rent?
  • If this is a net lease, what are the property taxes in the area?
  • What portion of the common areas are you paying for, and what are you allowed and not allowed to do in the common areas?

• During what hours will utilities and services be provided? Many commercial leases specify that electricity, heat, water and elevator service will be provided during business hours only. You might need these services 24/7. Make sure if you work during “off” hours, that the services you need will be available.
• How many years is the landlord willing to rent the premises? Usually, the longer the lease, the greater your stability. In addition, longer leases may provide you with more leverage in negotiations.
• What will the rent increases in each year of the lease be? Will there also be increases in the additional charges (CAM, property taxes, insurance, etc.)?
• How will additional charges (CAM, property taxes, insurance, etc.) be divided between the different tenants?
  
• Will the landlord grant you the option to renew the lease when the term expires? This option is advantageous, and should be included in the lease.
• Are you allowed to sublet or assign the lease to another party if you decide to leave before the tenancy terminates? If you sublet your space to another party, you are still responsible to the landlord for rent and all other charges should your tenant leave without paying. In an assignment, you transfer your rights and obligations under the lease to a new tenant and are released from these responsibilities – legally and financially. The lease should give you the right to do either of the above, and deny the landlord the arbitrary power to withhold consent for a replacement tenant.
• What other options are open to you should you need to terminate the lease, and are not interested in subleasing or assigning the space? Perhaps include a clause that stipulates that, with a certain number of days' notice and possibly a termination payment, you will be allowed to end the lease. Make sure any agreement you make is clearly described in the lease.
• If you are leasing the space as a business or nonprofit, does the landlord expect you to guarantee the lease personally? This addresses whether you are going to co-sign individually for the lease, which would entail you becoming personally and financially responsible if the business or organization defaults on the lease.

For more information about the ins and outs of commercial and industrial leases, see Chapter 7: Commercial and Industrial Leases.