Business and Operations
10 tips for negotiating your commercial lease
By Jeff Grandfield
Have you had previous experience in the pizza industry but now want to open your own pizzeria? Do you want to feel more comfortable negotiating a new lease? While you will have acquired some important knowledge about baking and serving pizzas, there is still much to be learned about hanging your own shingle (in any business).
At times, marketing, managing and menus will all need your attention; the same is true for the negotiation of your commercial lease.
Both the offer to lease and the formal lease you receive from a landlord contain points that are, in fact, quite negotiable in the tenant’s favour. Many tenants do not understand this, and rightly so. Tenants may go through the leasing process once or twice in their entire lifetime – yet they have to negotiate against seasoned professionals who negotiate leases every day for a living. But when a negotiation is done effectively, a new tenant can sign for a more appropriate commercial lease term, receive valuable tenant inducements (paid for by the landlord) and in some cases pay less monthly rent!
When leasing a new location for the first time for your pizzeria, these are some tips:
Negotiate to win
All too frequently, tenants enter into lease negotiations unprepared and don’t even try winning the negotiations. If you are not even negotiating to win, you won’t. With big commissions at stake, you can be sure the landlord’s agent, on the other hand, is negotiating fiercely to win. Tenants should remember that it is OK to negotiate assertively.
Be prepared to walk away
Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will make the most concessions.
Ask the right questions
Gathering information about what other tenants are paying for rent and what incentives they received will position you to get a better deal. Your landlord and his or her agent know what every other tenant in the property is paying in rent, so you must do your homework too.
Brokers … friend or foe?
Real estate agents and brokers typically work for the landlord who is paying their commission. It is not normally the agent’s role to get the tenant the best deal: it is their job to get the landlord the highest rent, the biggest deposit, etc. The higher the rent you pay, the more commission the agent earns. If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent’s listing. Your tenancy is more desirable to the listing agent if he can avoid splitting the commission with other agents.
Never accept the first offer
Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent’s first offer. In the real estate industry, most things are negotiable and the landlord fully expects you to counter-offer (even repeatedly).
Ask for more than you want
If you want three months’ free rent, then ask (negotiate) for five months. No one ever gets more than they ask for. Be prepared for the landlord to counter-offer and negotiate with you as well. Don’t be afraid of hearing “no” from the landlord: counter-offers are all part of the game.
Negotiate the deposit
Large deposits are not legally required in a real estate lease agreement. Deposits are negotiable and, more so than anything else, often serve to offset the real estate commissions the landlord will be paying out to the agent or broker. The Lease Coach is frequently successful in negotiating for the tenant’s deposit to be refunded when signing a lease renewal (and paying no deposit on new leases).
Measure your space
Tenants frequently pay for phantom space. Most tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says.
The leasing process is just that – a process. It’s not an event. The more time you, the tenant, have to put the deal together and make counter-offers, the better the chance you have of getting what you really want. Too often, tenants mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time.
Educate yourself and get help
Read books on the subject and listen to webinars. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can’t afford to gamble. In leasing, pizzeria tenants don’t get what they deserve; they get what they negotiate.
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 or interested in a free leasing CD entitled Leasing Do’s & Don’ts for Pizzeria Tenants, e-mail, call 1-800-738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com.