How to negotiate a commercial lease successfully


Renting a commercial space is an important milestone in your business. However, not many are aware that leases are open to negotiations that can be in the tenant’s favor. Since the rent and operating expenses affect the bottom line, tenants need to be cautious before committing to a lease agreement. Here are some tips to help negotiate a commercial lease.

Check your requirements: If you’re a small business you might want to rent a small space and commit to a smaller duration in case growth occurs quicker than expected. But if you’re running a restaurant, you will need a good location and long-term security. Analyze your requirements thoroughly and then scout for a rental space.

Research the property: Are there any competitors in the same building or the neighborhood? Are there any other issues that might affect the functioning of your business? Evaluate these factors and request modifications to the rent/ lease terms.

Check the market rates: Once you have shortlisted the space, check the market rates in the neighborhood. This will give you a fair idea about the prevailing rates and will help you negotiate your base rent better.

Negotiate on multiple spaces: Shortlist more than one space and negotiate on all these spaces. This will act as a backup if you must decline one.

Square footage: Check the square footage of the rental space. Since most commercial lease rent is based on square foot, there are chances of the Landlord expanding the square footage leading to a hike in the base rent.

Check the financials properly: Check the current base rent and operating expenses and projected future increases.

  1. Gross lease/full-service lease – Single rent amount that includes base rent and all other expenses (utilities, taxes, insurance, maintenance, repairs, CAM expenses etc.)
  2. Modified gross lease – share the incidental expenses with the Landlord
  3. Single net lease – base rent plus property tax & utilities.
  4. Double net lease – base rent plus property taxes, insurance and utilities. Landlord pays for maintenance & repairs
  5. Triple net lease – all expenses are paid by tenant including maintenance
  6. Percentage rent lease – base rent plus a percentage of gross sales over a certain minimum

Tenant allowance: Landlord usually offers allowance like free rent, improvements etc. to attract tenants. If you’re lease doesn’t state any specific deals, don’t hesitate to ask about these allowances.

Sublease: Does the lease offer an option to sublease the space? This option will come in handy if you must move to a bigger or a more appropriate space in future.

Get the leases checked by a professional: Commercial leases can run into pages and the language can be overwhelming. It’s recommended to hire a professional to analyze the lease to avoid any hidden costs or surprises in future.

To sum up – Read, understand and negotiate. These are the 3 mantras for a successful commercial negotiation.