July 2, 2021

How to Negotiate a Commercial Lease for Retail Space

Did you find the perfect commercial retail space? Then the next step is to negotiate the lease. Read on to learn everything you need to know about negotiating a commercial lease for retail space:

Familiarize Yourself With Commercial Lease Types 

The type of commercial lease you have will determine exactly what your monthly rent actually covers. Some commercial leases ensure the landlord is responsible for building maintenance; others make the tenants responsible for day-to-day operation and maintenance fees and even significant repairs on the commercial building itself.

Commercial lease types include:

• Gross/Full-Service Lease. With this type of lease, the tenant’s rent covers the use of the building and all operating expenses like property taxes, building maintenance, and utilities. Gross/full-service leases tend to have a higher bottom line, but it typically covers everything tenants might have to pay for while using the building.
• Net Lease. There are a few different types of net leases. In general, with a net lease, tenants pay a monthly rental cost and a certain level of operating and maintenance expenses. With a single net lease, tenants pay rent as well as a portion of the property tax. With a double net lease, tenants pay for property insurance and property tax in addition to their base rent. And with a triple net lease, tenants pay property taxes, insurance prices, and costs to maintain common building areas.
• Modified Gross Lease. This type of lease is highly negotiable and gives landlords and tenants the freedom to come to an agreement that suits the concerns of both parties. With a modified gross lease, tenants pay a base rent price and then negotiate other shared expenses to be added to that total.

Take Time to Negotiate

The first draft of a lease is just that: a draft. Commercial leases typically undergo several rounds of negotiations, so it’s wise to allow plenty of time for the back-and-forth of coming to a mutual agreement. As you negotiate a commercial lease for your retail space, keep the following tips in mind:

1. Go longer-term if possible

While long-term leases aren’t ideal for every business, they offer more leverage when negotiating. A longer lease gives landlords the security of knowing they won’t have to go shopping for a new tenant in the immediate future, and it allows you a bit more leverage when it comes to nailing down favorable terms.

2. Get your priorities in order

What exactly is a must-have for you? If you’re set on a lease that puts all building maintenance costs on the shoulders of the landlord, that’s something you need to clarify before entering negotiations — but you might need to be flexible on less essential items on your wish list.

3. Make flexibility part of the negotiating process

We mean flexibility in adding early termination clauses, the option to sublet if necessary, or assignment clauses that could help you out if your business plans don’t align with your goals. Working these features into your lease can be a life-saver later on.

4. Carefully consider tenant improvements

What improvements will you need to make to start work in the new storefront? Assess how much these improvements will cost. Your landlord might be unwilling to provide for a large tenant improvement allowance, but negotiating a rent abatement might offset your initial costs for those improvements.

5. Empower yourself with a tenant representation broker

The best commercial real estate broker is the one who’s familiar with the market in your area and represents your interests from beginning to end. A skilled broker will also negotiate a detailed term sheet which will lead to smoother sailing once the lease negotiations ensue. Tenant representation services will serve as your advocate as you negotiate and renegotiate your lease terms.

When it comes to New York and Connecticut commercial realty, Rakow Commercial Realty Group offers powerful allies throughout the building search and representation process. As a New York commercial realty firm offering buyer and tenant representation services, we have decades of cumulative experience working with tenants and landlords. Wondering how to renegotiate a commercial lease, how to begin your commercial building search, or where to go to find relevant commercial real estate listings? Get in touch with our experts today!