6 Commercial Lease Negotiation Mistakes to Avoid

6 Commercial Lease Negotiation Mistakes to Avoid

Unless you’re a commercial real estate professional, negotiating a commercial lease for your new office space can be a daunting and confusing process. The lease sets up your relationship with your landlord by establishing rules and regulations, and also backup plans for when things go wrong. While aspects such as base rent and concessions are among the first to be discussed, there are other details in a lease agreement, as well as terms for issues that appear throughout the lease term, which unfortunately are often overlooked. Signing on a lease agreement without paying attention to all the terms and details can turn disastrous for your business. Avoid these 6 common commercial lease mistakes and build on a robust foundation for your new workspace.

1. Not planning ahead

Prospective tenants often underestimate the length of time required to find a location that suits their needs and to negotiate the lease. Taking the time to research the market, exploring options such as build-to-suits and new development projects that are not online yet, or even considering a lease extension of the place you’re currently in – these actions can put you in a favorable position to create competition between and among your prospective landlords, and not the other way around.   

Being in a hurry always takes its toll. Avoid setting irrational goals like searching today for an office that you plan to move into next week. Not allocating enough time for this process can easily put you in the proverbial corner. 

2. Not choosing the right location 

The most important factor in the real estate industry, location, can be a double-edged sword: choosing a bad location or focusing on a single location can be equally dangerous for your business. For an office tenant, it is as important to find a site that doesn’t break the bank as it is to ensure that it meets not only its needs but also those of its employees and its clients. Consequently, key points for office tenants are the amenities and the condition of the property. Tenants should require landlords to maintain the space in a certain condition, as well as provide services to a standard that is consistent with the condition and level of service that made the location desirable in the first place. 

Furthermore, getting emotionally attached to a certain space can leave the tenant vulnerable in the negotiation, as the landlord or the leasing agent have no obligation to do the prospective tenant any favors. Try to look into several spaces and allow yourself some flexibility.

3. Not understanding the lease terms

Information is power and that stands true in any industry. With the right knowledge, you can control any area of your life. Lacking market knowledge can be detrimental to tenants in search of office space, as they can enter into lease agreement without completely understanding the meaning of each term, as well as their implications. Don’t be afraid or ashamed to ask questions or clarify any issues; it might slow the negotiation process a bit, but it can save you both peace of mind and money in the long run.

4. Not considering the build-out costs and taxes

Not all landlords are offering to build out the office space for the new tenant. In some cases, the space is stripped to a blank canvas and landlords push the new tenant to partially absorb the costs associated with the build-out of the space.

Another thing to consider is the building’s real estate tax. Make sure you know what percentage of it falls under your responsibility and what happens when the rate goes up. Not knowing this piece of information enables the landlord to increase your portion of the tax more than is proportional to the tax hike. 

5. Not inspecting the space

Before you agree to anything, go and take a tour of the space. Look into the condition of the HVAC, the lighting, the bathrooms, pantries and the like. See how much work is needed – flooring, carpeting, paint jobs– and who will be paying for the upgrades. Also, don’t forget to inquire about how long these improvements might take. 

During the tour, it would be advisable to ask the landlord about future repairs – while you will be responsible for repairing or covering the cost of repairs to the equipment in your office, the landlord is typically responsible for repairing light fixtures, flooring, doors and common-area amenities. 

6. Not using the right representation

If you are in the commercial real estate business, you probably are familiar with the market conditions and know how and what can be negotiated. Otherwise, consider hiring a commercial real estate professional to help you find the space that will meet your current and future needs. Trying to negotiate a lease yourself to avoid broker fees often leads to costly lease problems in the long run, as a common theme of the above points is lack of knowledge and expertise.  

Are you thinking of setting up your business in a convenient location in Manhattan, and are looking to lease space in a modern building offering state-of-the-art amenities? Then reach out to us and we will show you worthwhile space situated right in the heart of New York City. To learn about available office space, call Metro Manhattan Office Space at (212) 444-2241 or email us at [email protected]