A commercial lease negotiation checklist is an effective instrument used by lessees and landlords when signing a commercial lease agreement. In addition, this checklist strives to ensure that all important matters are addressed and that all parties consent before executing the commercial lease. A well-negotiated commercial lease can help avoid prospective conflicts and ensure that the tenancy benefits both the owner and the lessee.
Essential Components of a Commercial Lease Negotiation Checklist
While negotiating a commercial lease can be a complicated and time-consuming procedure, it is essential for companies looking to secure the right space to fulfill their requirements. Also, to help ensure that you get the most promising deal possible, it is necessary to have a checklist of the key elements to consider during the negotiation process. Below are some principal elements to include in your commercial lease negotiation checklist.
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Location of the Proposed Commercial Space
The location of your commercial space is essential to your company's success. You want to ensure that you remain located in an area that is easily accessible to your target clients and employees. Hence it is necessary to incorporate the commercial property's location in the checklist and consider the proximity to road networks, public transportation, and other amenities such as restaurants and shops.
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Rent and Rent Increment
Rent is one of the largest expenditures a company will face, and it's essential to ensure that the rent amount is affordable and reasonable. When drafting a commercial lease negotiation checklist, understand the rent provisions, including the initial rent, any increments, and the frequency of rent increments. Consider asking for a rent-free period or an upper limit on rent increases to safeguard your business against possible rent spikes.
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Commercial Lease Term
When preparing a commercial lease negotiation checklist, the lease term is important. While a longer commercial lease duration provides stability and predictability, it ties you to the property for a longer period. On the other hand, a shorter lease term provides more flexibility but may result in higher rent and restricted possibilities for lease renewal. In addition, you must consider your company's growth potential and how your requirements may vary over time when deciding on the lease period.
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Common Area Maintenance
The fourth point commercial lease negotiation checklist includes common area maintenance (CAM). CAM, also known as common area maintenance, is the cost of maintaining and using common building areas, such as elevators, lobbies, and restrooms. Lessees should understand what CAM expenses are incorporated in the lease agreement and what expenditures they will be responsible for settling. It is also necessary to determine whether the CAM expenditures are appropriate and whether they are subject to modification over time.
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Alterations and Improvements
If you plan to modify the commercial space, it is essential to comprehend the lease terms regarding enhancements and alterations. It can include installing fixtures, painting, or modifying the layout. Also, you must ensure that you understand who will be responsible for the cost of these modifications and whether you can change the space if your company needs to change.
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Operating Expenses
Operating expenses can greatly affect your company's bottom line, so you must comprehend what expenditures you will be accountable for when negotiating a commercial lease. These expenses include property taxes, utilities, insurance, and maintenance costs.
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Security Deposit
Another item on the commercial lease negotiation checklist is the security deposit. The security deposit is a sum of money the lessee must pay the lessor as security for the lease agreement. Tenants should be aware of the amount of the security deposit and the conditions under which it will be returned to the lessee at the end of the commercial lease term. It is also necessary to determine whether the security deposit is non-refundable or refundable.
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Subleasing
Subleasing can allow a company to create extra revenue or share the expense of the commercial space. Nevertheless, it's important to comprehend the lease terms regarding subletting, including who will be accountable for finding a subtenant and what constraints may apply. Assess whether subleasing is an alternative for your business and whether it is something that you will need to negotiate into the commercial lease.
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Parking
Access to satisfactory parking is crucial for many companies, so include the parking situation in a commercial lease negotiation checklist. This point can comprise the availability of off-site parking, on-site parking, or street parking. Consider the requirements of your employees, clients, and vendors when deciding on parking arrangements.
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Leasehold Modifications
The final item on the commercial lease negotiation checklist is leasehold improvements. Leasehold improvements are the modifications the lessee can make to the commercial space, such as painting the walls, installing new fixtures, or new flooring. Furthermore, lessees should be aware of the expense of the leasehold modifications and who will be accountable for paying for them. It is also important to decide whether the leasehold improvements will remain in the space when the commercial lease term ends.
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Key Terms
- Rent Escalation: A requirement in the lease contract that defines how the rent will rise over time.
- Renewal Options: The prerequisites allow the lessee to renew the lease agreement after the lease period has lapsed.
- Tenant Improvements: Modifications or additions made to the property by the lessee, for which the lessee may be entitled to a refund from the landlord.
- Subleasing: The process by which the tenant rents out a portion of the property to another party.
- Use Limitations: Requirements in the lease agreement specify the property's permissible uses.
- Subordination and Assignment: Provisions in the lease agreement allow the lessee to transfer their lease to another person or give priority to other creditors in the event of insolvency or bankruptcy.
- Insurance Prerequisites: Provisions in the lease contract require the lessee to obtain and retain certain insurance policies.
- Maintenance and Repair Obligations: Provisions in the lease agreement summarize the obligations of the landlord and lessee for maintaining and repairing the property.
Conclusion
To summarize, a well-negotiated commercial lease agreement can be the difference between success and failure for a company. A commercial lease negotiation checklist can help guarantee that all elements of the lease agreement are evaluated and managed. And by assessing each key point, a lessee can ensure that the commercial lease agreement is in their best interests and safeguards their company from potential liabilities. Moreover, it is necessary to consult a professional real estate lawyer to review the lease agreement before signing it to ensure that the lease terms are fair and reasonable.
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