When leasing commercial or retail premises there are certain points of negotiation that always create pain for the parties concerned. Here are a few of the big and most common ones:
- The landlord wants a high starting rent
- The tenant wants a big incentive
- The tenant wants a huge option term for further potential occupancy
- The landlord wants a tenant but is not prepared to provide an incentive to attract them to the property
- The last tenant left the premises in a mess and the landlord will not fix it up until a new tenant is found
- The landlord will not refurbish the premises before they have a tenant on a signed lease
- The tenant does not want to give any form of guarantee as security in the case of any default of lease
These are the most common problems for the average lease negotiation. Most landlords also think that their property is better than anything else around and on that basis will not negotiate down on any rent to get the premises let. So often you hear that the landlord is prepared to wait it out and see what the next tenant will offer.
In this market there are limited numbers of active tenants looking to relocate to new premises. In some cases there can be 5 properties available for every tenant to choose from. Urgency in the lease deal is not high from the tenant’s perspective; landlords need to know this. They may only get one tenant to make an offer for the premises.
When it comes to leasing premises it is not where you start your lease and rent, but it is more important to know where you are headed and where you will finish. Rent reviews during the lease term can take care of rent escalation to improve the lease, providing the real estate agent negotiates the lease well.
So what can you do with this list of common leasing problems? The best way is to use the pain of the vacancy (in the case of the landlord), or the pain of the need for new premises (in the case of a tenant) to move the deal forward. You should work with the offer that you have and not hope that another will come again soon to replace a low offer today.
Take today’s lease offer and turn it into a valuable lease over the term. Show the landlord the real value of the lease by doing an analysis of the deal using a net present value approach on the lease cash flow over the lease term. It is remarkable how the landlord will soften their negotiation position when long term lease value is explained in numbers.
by John Highman
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