Tip 1: (Almost) Everything is negotiable
Commercial leases are usually long, wordy documents full of complex provisions that are oftentimes hard to understand and almost always favor the interests of the landlord. You do not have to accept many of these provisions as they are initially presented to you. You can, and should, look at everything as being negotiable: term of the lease; base rent and additional rent; rent increases/escalators; personal guaranties; exclusive use; maintenance and repairs; co-tenancy clause; who bears responsibility for compliance with changes in state law. Everything. Language that appears to be boilerplate can have significant and unexpected impacts on your business’ bottom line. If you are negotiating a commercial lease for the first time, you most certainly want to retain the services of someone familiar with commercial leases to break down the meanings of various provisions and how they can and might impact your business.
Landlords do not like vacancies. Vacancies mean someone is losing money and no one likes to lose money. Because of this, tenants have a lot of leverage in lease negotiations. Receiving a 30-page commercial lease can be intimidating but at the end of the day the tenant is the one writing the check for the rent (and it is a lot of rent). You should view the initial lease as nothing more than a starting point. It is important to put any feelings of intimidation to the side and look at the proposed provisions from the perspective of someone with a little to lose and a lot to gain in the negotiations.
Tip 3: Appreciate that you have everything to lose #motivation
If 65% of your customers come from the Walmart next door, what do you think will happen to your business if that Walmart suddenly closes? What do you think will happen if you go out of business in year two of a five-year lease? Do you think most new businesses have the extra funds to pay for a new roof if it collapses after a historic snowstorm? Do you have the personal assets to guaranty a 10-year lease if your business goes under? The answers to all of these questions and many more should be taken into consideration when approaching lease negotiations because you have (literally) everything to lose. A commercial lease is not a commitment to be entered into blindly or lightly and nothing drives that point home more than the thought of filing for personal bankruptcy because you did not negotiate a better lease for your business. Negotiate like you have nothing to lose but realize that you literally could lose everything.
Tip 4: Commercial leases are different than residential leases (in many ways)
When you rent an apartment or a home, you will usually enter into a lease for 1-3 years. Most leases have automatic renewal provisions that are usually accompanied by a rent increase. If you fall on hard times or simply desire to move on, you can break your lease, pay a penalty and move on with your life. You are unlikely to be driven into bankruptcy for breaking a residential lease. The same does not necessarily hold true for commercial leases. Commercial leases are typically for 3-5 years (if not longer), involve significantly more money, and moving on in the middle of a lease term is not so easy and it is usually far from cheap. In most states, there are fairly detailed laws governing what residential landlords must do to evict a tenant. Generally speaking, those laws benefit tenants. This same spirit is largely absent in laws governing commercial leases. This means that commercial landlords have very few legal requirements to meet before forcibly evicting tenants. However, a good lease can and will address how a tenant is to be evicted and what steps must be taken prior to doing so. When negotiating a lease, make sure you plan for the worst.
Entering into a commercial lease is a major milestone for any business. In the midst of all of the excitement, do not lose sight of the fact that you could lose it all in a poorly-negotiated lease.