Renters often miss the chance to bargain with their landlords. As a small business owner, one of the biggest ongoing expenses you’ll face is commercial property rent, and yet negotiating this cost down can seem intimidating at best, impossible at worst. But, it’s a skill worth mastering—an unfavorable lease could ground your enterprise just as it’s prepared to take flight.
Can you negotiate rent?
Yes, you can and should negotiate the terms of your lease before signing. By lowering your rent, your business can ease a major financial burden. Landlords are usually open to it, too, especially if you’re already a tenant whom they wish to retain.
Types of commercial leases
To successfully negotiate with your landlord, you’ll have to understand the different types of commercial leases so you’ll know what you’re responsible for. The most common types of commercial leases include:
- Net lease: You pay rent plus some or all of your operating expenses—property taxes, insurance, and maintenance. These leases demand the responsibility of ownership without its benefits, but should compensate you with low rent. They come in three types:
- Single net lease: You pay rent and property taxes. Your landlord pays for insurance and maintenance.
- Double net lease: You pay rent, property taxes, and insurance. Your landlord pays only for maintenance.
- Triple net lease: You pay rent, property taxes, insurance, and maintenance. Your landlord doesn’t pay for any property costs.
- Percentage lease: You pay rent and a percentage of your gross sales. These are common for retail spaces.
- Gross rent lease: You only pay rent. Your landlord pays for all operating expenses, such as taxes, insurance, and maintenance. Because these leases require the most work and responsibility from your landlord, these rents will be the most expensive.
Elements of a commercial lease
When negotiating your lease, remember that rent is one consideration among many. Here are some other important factors that can shape the cost of your lease:
- Lease length: Negotiating your rent down is easier with a longer lease. But remember, a longer lease limits your ability to relocate or expand.
- Hidden costs and fees: Read your lease closely for property expenses like the aforementioned property taxes, insurance, and maintenance. Some landlords include them in the lease, while others bill separately.
- Sub-leasing and co-tenancy clauses: If you plan to share your space, you’ll need to know your sub-lease or co-tenancy clause. Your landlord may forbid sub-leasing or require you to get their approval first.
- Termination clauses: Familiarize yourself with the penalties for breaking your lease. Most leases require you to pay a hefty fee and/or give advance notice.
- Rent increases: Know if, when, and how much your rent will increase during the lease term. Some leases have fixed periodic rent hikes or tether your rent to inflation.
7 tips for negotiating your business rent
Research the market
Do your research before stepping into the market. Compare similar rentals in the area—what they charge and what they offer.
Know your budget
Consider your projected revenue and other expenses to avoid overspending on rent. Set your budget before you enter negotiations.
Gather information about the property
Take note of the age, condition, and relevant information about past and current tenants, repairs, renovations, etc. This will help you negotiate a lower rent or more favorable lease terms.
Create a list of must-haves
Outline specific clauses you want included or omitted in the lease agreement, like including property insurance or avoiding inflation-based rent hikes. This is also a chance to distinguish your must-haves from your nice-to-haves.
Negotiate with more than one landlord at a time
As you near the end of your lease, it’ll help you to talk with other landlords, even if you want to renew at your current property. If you can secure a better deal at another location, you can bring it to your present landlord as a counteroffer. If your current landlord rejects the counteroffer, you can simply accept the better terms elsewhere.
Put everything in writing
Document everything your landlord agrees to verbally in the form of written contracts. Read what you’re given carefully to ensure you’re on the same page once it’s time to sign.
Involve a lawyer if you need one
Lawyers cost money, but so do bad leases. Whether you’re a first-time start-up owner or a seasoned entrepreneur, consider having a commercial real estate attorney review the fine print—it could save you a lot of money which should be going toward growing your business.