Commercial Property Leasing – Pain Points for Lease Negotiation

When leasing commercial or retail space, there are certain negotiating points that always create pain for the parties involved. Here are some of the big and most common ones:

1. The owner wants a high initial rent
2. The tenant wants a big incentive.
3. Tenant wants huge option term for potential future occupancy
4. The landlord wants a tenant but is not prepared to provide an incentive to attract a tenant to the property.
5. The last tenant left the premises in disarray and the landlord won’t fix it until a new tenant is found.
6. The landlord will not renovate the premises before they have a tenant on a signed lease.
7. The tenant does not want to give any type of guarantee as security in case of breach of the 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 it and on that basis they will not negotiate any rent to rent the premises. Very often you hear that the landlord is prepared to wait and see what the next tenant offers.

In this market there are a limited number of active tenants looking to move into new facilities. In some cases there may be 5 properties available for each tenant to choose from. The urgency in the lease is not high from the perspective of the tenant; owners need to know this. They can only get one tenant to make an offer on the premises.

When it comes to leasing premises, it’s not about where your lease and rental agreement begins, it’s more important to know where it’s going and where it will end. Rent reviews during the lease term can take care of increasing the rent to improve the lease, as long as the real estate agent negotiates the lease well.

So what can you do about 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 facilities (in the case of a tenant) to move the deal forward. You should work with the offer you have and not expect another one to come along soon to replace a low offer today.

Take today’s lease offer and turn it into a valuable lease for the term. Show the lessor the actual value of the lease by doing a deal analysis using a net present value approach on the cash flow from the lease over the lease term. It is remarkable how the lessor softens his bargaining position when the value of the long-term lease is explained in numbers.