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Commercial Lease 101: Negotiation Tips You Need To Know

Renting a commercial space comes with a plethora of considerations. Some obvious factors that you need to sort out are the rent, duration of the lease, renewal options, permits, and if you can sublease the space.

With all the factors that you need to take into account, some tenants forget that these terms are negotiable. It’s important to break them down since it’s common to overlook a bunch of these points, which can give unnecessary problems to tenants down the line.

Since negotiations require specific knowledge and skills, it's always a good idea to leave it to the hands of professionals. Most tenants work with experienced lease negotiators to get the space they desire on their own terms. Trust us — working with professionals to negotiate your lease is life-changing and will benefit you in the long run.

If you're curious to know how to effectively negotiate a lease, here are some factors that you need to consider:

Factor #1: Face Market Rent Reviews vs. Effective Market Rent Reviews

Some commercial leases that will have an option to review will have a market rent review clause in their contract. With this, the landlord will propose a rental amount in line with what the other tenants are paying for similar spaces. However, what is often overlooked is if their rent review clause is face or effective.

Face rent disregards incentives like rent-free periods, reductions, and fit-out contributions. On the other hand, effective rent is the rental amount the landlord receives after you've paid for operating expenses, tenant works, and amortising incentives.

Factor #2: Market Review Notice Disputes

When it comes to the rent review process, it's important to know that you can dispute the new rental amount. First, the landlord will provide a new rent notice based on the condition of the market. Next, you are given time to accept or dispute the new rental amount, which usually has a period of 14 days.

If you agree with the figure, then that will be used as the new rental amount. If you contest, you must negotiate for fair market rent. Finally, once both parties agree with the amount, it is deemed to be the current market rent.

When negotiating the rental amount to get a fair price, working with expert lease negotiators is key. This way, you can identify loopholes and areas in the contract that need to be considered to ensure that you get a fair price.

Factor #3: Incentives

One of the biggest factors new tenants forget is that you are entitled to receive commercial lease incentives. Commercial lease incentives are concessions offered by the landlord that encourage tenants to sign a lease or renew it.

Some of the most common incentives are rent-free periods, rent reductions, and even fit-out contributions. So if you're negotiating your incentive, ensure that you consider the incentive that will work best for your business, research the current real estate market conditions, and understand various tax implications.

Factor #4: COVID-Friendly Lease Terms

There's no denying that the global pandemic has hit various industries and businesses strongly. With that, if you're thinking of renting a commercial space during this time, it's best to negotiate your terms, given the current situation.

Consider different clauses, such as a break clause where you can terminate the lease early should the market conditions change. Another thing you can bring up is the Act of God provision, ensuring that you're covered in the future should a force majeure occur.

Finally, you can also negotiate for COVID cleaning services to ensure that all tenants are clean and safe in their space.

The Bottom Line: Commercial Leases Don't Have to Be Complicated

Many tenants forget that you have the upper hand when it comes to renting a commercial space. Remember — the landlord needs you, and with that being said, you need to negotiate terms that will benefit you and the landlord.

For this reason, it's best to work with expert lease negotiators like Lease Negotiation Services to ensure that you get the terms and rental amount that will benefit you in the long run.

Why Work With Lease Negotiation Services?

When it comes to renting a commercial property, there are various factors you need to consider. With that being said, you must work with lease negotiators to ensure you stay on budget and get the benefits you're entitled to when you rent a commercial space.

Lease Negotiation Services is Sydney's leading lease negotiator. We offer no savings, no fees and offer our expertise for retail and commercial lease negotiations.

Learn more about how we can help you today!

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