3. Tenant Improvements
One section of the lease that calls for negotiation. Generally, the landlord will not do any work to the space and this may work to your benefit or not, depending on your business concept. If the landlord plans to renovate, that should not affect the lease costs. Landlords tend to recupe their money by raising the amount of the lease; or, factor the improvements into the lease every month. At best, get the landlord to renovate to your specifications at their cost without settling for the minimum lease term. It’s worth a try. The worst that can happen is that the deal is countered with the next best offer.
4. Gross Versus Triple Net Leases
Gross leases are more attractive in theory but not always on paper. That’s because gross leases are supposed to include all expenses rolled into one amount: base rent plus TMI (taxes, maintenance, insurance). You just don’t know how much of the “expenses” you’re paying. Triple net leases break all the costs down: base rent plus the three components of the TMI and what the escalations will be year after year. Lease rates will vary from building to building but the more that management offers in terms of service and amenities will raise the price. Expect to have more negotiating room with larger, commerical buildings than with those that are smaller and independently owned.5. Escape Clauses
Hopefully this will never happen to you but if you have to shut down the business you may find yourself hitting a brick wall when it comes to terminating the lease. Landlords are not usually push-overs and very rarely will let you out of a lease – even if you offer up a penalty payment. Have some means of escape. One of the deadliest clauses is the “Covenant” clause that states you will be responsible for paying the entire term of the lease, regardless of the outcome of your business. Landlords will be very aggressive to getting their money, even if you move and they re-lease your space.
6. Subleasing
Most lease contracts have a sublease option but they are not frequently to your benefit. Expect to meet the approval of the landlord if you plan to sublease your space. This can be time-consuming and tedious, depending on who put in the application. A landlord can reject a sublease tenant for many reasons. Your lawyer should use a line such as: “the landlord will not refuse a sublease tenant within reasonable capacity…” In other words, if a suitable tenant comes along, the landlord cannot make excuses for rejecting the application and must act reasonably to execute your wishes.
Some Advice to Consider Before Signing
The goal of a landlord is twofold: to make money and to ensure that the businesses in the building maintain an efficiency to continue making money without interrution. As a tenant, the lease will not be written for your benefit; if you plan to be there for at least five years, be 100% certain that this is the place for you. You can’t really pick your landlord but it’s always a plus to know when the landlord acknowledges that your success means his/her’s success. Most tenants shy away from developing relations with their landlords. If possible, soften the boundaries and have a channel open for communications when it’s required.
Once you are settled in and open for business, plan to stay there. If expansion is in the horizon, landlords are known to move their tenants to a larger space in the building and even cover some or all of the renovations. In the real estate business – as in many others – you should always build bridges, not burn them.
