Keep an Eye on the Terms of the Lease

Have you noticed that it can be a real challenge trying to keep an eye on "the fine print" while still moving ahead with the "BIG" picture?

As challenging as it may be, it's something that every successful entrepreneur needs to master!

"Recognize your areas of Strengths, and access appropriate expertise in critical areas that require attention."

When it comes to negotiating or renegotiating your Commercial Lease, the valuable insights provided by Dale Willerton and Jeff Grandfield at The Lease Coach are certain to be most helpful.

Negotiating the Business Terms of the Lease Deal

By: Jeff Grandfield and Dale Willerton – The Lease Coach

Dale Willerton and Jeff Grandfield

Although it would be nice, it’s highly unlikely that a commercial landlord will hand you a proposed lease with correctly-worded and perfect terms and conditions. 

As we explain in our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, it is likely that you will have to negotiate many of the primary business terms critical to your business success. Here are a few things that commercial tenants should not ignore:

Choosing between an Offer to Lease or Letter of Intent: Commercial tenants, landlords, and agents often use these phrases interchangeably, but these initial lease documents are different. A Letter of Intent (or LOI) is often shorter and is non-binding to either party. An Offer to Lease is, typically, more in-depth and is binding – subject to conditions by the landlord and tenant. Given a choice, The Lease Coach recommends using an Offer to Lease rather than an LOI. An agent may try to sway you otherwise with the argument, “It’s non-binding … what have you got to lose?”. The truth is that you can have a lot to lose if you send in a hurriedly composed and/or poorly thought out LOI or sign an LOI that is unfair to you.

Determining the Parties to the Lease Agreement: The landlord’s corporate identity is usually well-established; however, yours may not be. The Lease Coach recommends that you not list your personal name on the agreement (as you will become personally responsible for any future losses). Instead, form a corporation or LLC for your business. Establish your corporate identity ahead of the negotiation process and have it ready to use on all correspondence because this name that you use on the Offer to Lease will carry over into the formal lease agreement, unless noted that it will change.

The lease term (or length): The majority of commercial lease deals are five-year lease terms; however, exceptions have become more commonplace. The Lease Coach frequently negotiates three-, seven-, or 10-year lease terms. A lease term can be stated in either months or years. It’s important to factor in the start and expiration dates of the lease term relative to what’s best for your business. Franchised commercial tenants should make sure that their lease term matches their franchise term to avoid issues with the lease term. This happens when the start date of the franchise agreement is prior to the start date of the lease agreement – which may be several months later, when the franchised business actually opens.

Listing the Base (or Minimum) Rent: Base rent is the portion of the rent payable to the landlord, excluding operating costs, and is the most negotiable portion the rent you pay. Calculating your total base rent is easy – take the number of square feet and multiply it by the annual rent per square foot to equal your annual base rent. By dividing the annual base rent by 12 (months), this will equal your monthly base rent for your tenancy.

There are, of course, many other business terms in a commercial lease. Don’t overlook any of the following:

·      The amount of tenant allowance and/or free rent

·      The amount of operating costs (Common Area Maintenance / CAM charges)

·      A list of the landlord’s and the tenant’s work to be done

·      The amount of the lease deposit

·      Conditions (business permits, including zoning; construction estimates; financing; inspection of the property / premises; partner / franchisor approval; and satisfaction with the formal lease agreement)

·      Assignment Rights

·      Days and hours of operation

·      Expansion right

·      Parking

·      Signage

·      Personal Guarantees

·      Termination rights

For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please e-mail your request to JeffGrandfield@TheLeaseCoach.com. 
 
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.

What's been your experience? 

Feel free to add your comments and thank you in advance

for sharing this post with those in your circle of contacts!

                                                                                           

QUESTION: When was the last time you took a look at your BUSINESS PLAN?

 IF it wasn't within the last 6 months ... let's take a look at it together! 

Be ready for when the next business opportunity 'knocks at your door' ... don't delay!
Let's make sure that you're ready to move forward!

If you're looking for feedback and suggestions to improve your business plan, and valuable input regarding how you present your opportunity to others, you'll want to use our “Business Plan Review” service. Let's explore this in more detail!

For more information see:

"Option 5 – “PVS – Business Plan Review”

It's listed on our Website Registration page:

CLICK HERE