People do not always get what they deserve, they get what they negotiate for. This is particularly true in the real estate world.
The process of negotiating a commercial lease can be a demanding experience for most decision makers. By keeping the following factors in mind, entrepreneurs can avoid some of the most common mistakes in negotiating leases:
Whatever market it is, whether it is a property owner’s market or a tenants’ market, you can always find something to be used as leverage. Try to create leverage by using time. Leases generally take several months to complete so avoid delaying your office search. Do not let the lack of time decide the terms of your lease.
You can also create leverage by being tight-lipped about your feelings about the space, particularly to the listing broker or property-owner. This will allow the broker to have improved performance in negotiating. If the property-owner’s team realizes that a potential tenant’s desire for the space and an inability to select another property, the owner now has some leverage. It is customarily a clever idea to have alternative space options in mind.
Do not think rates. Think term.
Tenants tend to get caught up in rates upon finding an ideal space. While the rental rate is important, the term of the lease can have a greater impact on finances. You should spend time negotiating the lease’s term and consider the company’s future needs, instead of bargaining for a few percentage points off the rate. If you select the wrong term, you can end up paying more in rental fees for a space that does not work for your company than what you saved by trimming 5 percent from the asking rental rate.
It is never true that a tenant gets anything free.
The lease’s term length can also affect other crucial variables, such as tenant developments and concessions such as rent reduction. Be sure not to settle on a term for the lease that’s years longer than initially desired just for free rent or better tenant development dollars. These improvements are never free. You should understand that these costs are always baked into the lease’s value by your property-owner. The property-owner can make the money back at any point.
Arrange for a solid legal review.
Although brokers are skilled in lease negotiations, you should remember that they are not lawyers and are paid on commission. Commission increases with the value of your lease. Brokers can greatly benefit from your signing of a lease and will generally receive nothing if no agreement is reached.
This creates some conflict of interest. You should consider paying an experienced real estate lawyer to be a part of the negotiation process and assess your lease. Your lawyer is paid irrespective of which space you choose and even if the rental is suspended or the possible tenant walks away.
Negotiate protections for an exit.
Bargain for exit guards should things go wrong. If you foresee a success for the next two years but not five, it may be worth negotiating for some cancellation clauses.
Lastly, remember to negotiate your lease. You can win from negotiating. Be creative to get your needs met.
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