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    1 Reply Latest reply on Jun 9, 2008 1:04 PM by Lighthouse24

    negotiating commercial leases...

    avello Newbie

      I have finally found a commercial site that I am interested in. I am a start up business and need some advise on some of the more important things to try any negotiate in a commercial retail lease. With the market as bad as it is, I want to try and negotiate as much as possible, but at the same time I do not want to offend the owner or make him feel I am not serious. Can anyone offer me some good advice. Obviously price is one, but what else....

      free rent for first three months
      build out costs
        • Re: negotiating commercial leases...
          Lighthouse24 Ranger

          First off, I'd guess that every small business owner here could do a better job negotiating his or her first commercial lease if he/she had it to do over -- it's a learn-through-experience process, so don't set an unrealistically high expectation for yourself. If, when all is said and done, you get the right space with a price and terms that will allow your new business to grow and profit, then that's great for a first experience. Here are a few tips that may help you achieve that.

          Negotiating a commercial lease requires you to know something about negotiating and something about commercial leases. It's almost a sure thing that the people with whom you'll be dealing know a lot more about both of those than you do -- so don't go in acting aggressive or pretending to be a pro. Admit your inexperience, but remain assertive. The best way to do that is to be prepared.

          Learn as much as you can about how commercial leases work. Here are some primers, each of which have related follow-on links:
          http://www.inc.com/articles/2000/05/19694
          .html
          http://www.nolo.com/article.cfm/objectID/
          54E96F84-0B14-4DBD-BF29F9962FA9E68D/111/22
          8/142/ART/
          http://smallbusiness.findlaw.com/business
          -operations/commercial-real-estate/commerc
          ial-real-estate-lease-overview(1).html

          Those articles will explain the basic terminology and components of what you'll be negotiating.

          As far as the negotiating process itself, know your "bottom line" -- i.e., the price and terms you need to make the financial projections in your business plan work -- and then STICK TO IT.

          Plug the numbers into your best case and worst case financial projections and start asking yourself "What if?" questions. If you can envision a scenario where you'd have trouble paying your lease, or where the terms might hinder your operations, then you have a valid negotiating point. Don't let a property's "emotional appeal" cause you to accept a bad deal (one where everything will have to go perfectly for you to make a profit). Explain where the price or terms need to change in order to fit your business plan and financial model. This gives the landlord the option of changing something to make them fit, or directing you to another property that may actually be more suitable.

          Be willing to walk away if the deal can't meet your needs. As long as you can offer a legitimate business reason for the changes or concessions that you are asking the other party to make, you will not look amateurish -- and you may even earn a little respect.

          A lot of members in this community who have had problems with commercial leases seem to be surprised to learn that things are not "fair." Unlike residential leases (in most states), there are virtually no consumer protection laws for commercial leases -- the law assumes that two intelligent business people have discussed and reached a mutual agreement, and whatever that agreement is will usually stand no matter how unfair. So you will have to live with whatever you negotiate. As I said, it will quite possibly be the worst deal you ever make, but it can still be a good deal if it helps move your business to the next level.

           


          Good luck!