Allow sufficient time: For a new location lease agreement, get started nine months in advance to avoid unexpected situations and delays. Lease renewal negotiations should begin 12 months before the term expires. This will give you sufficient time to look at other sites and do your homework. Time will be your ally or your enemy, depending on how you use it.
Talk to other tenants: Some of the best inside information available is from tenants already in a building. The Lease Coach asks many pointed questions to existing tenants about the level of property maintenance, how they feel about the rental rate they are paying, whether they intend to move or renew their lease for another term and so on.
Understand who makes the first offer: Whether you are looking at a new lease or a renewal, it is best if the landlord makes the first proposal to the tenant. Don't be surprised if your verbal request (especially for a renewal proposal) falls on deaf ears. Write a brief letter to the leasing representative requesting a written renewal proposal within 10 days. If you make the first offer, this implies that you will stay – thereby undermining your negotiating strength.
Define the use clause: It is extremely important the tenant's "use" clause be completely defined (within both the offer to lease and the formal lease agreement) so as to include every possible product or service you plan to sell or offer. Don't assume that if your primary use is that of a hair salon, you can automatically add a tanning bed, or if you are a chiropractor, you can automatically offer massage therapy. Exclusivity on your primary use is also important.
Set a reasonable asking rent: Rental rates are set by landlords to achieve a reasonable profit. Many tenants incorrectly believe that the landlord wouldn't charge more rent than the tenant could afford to pay. You must distinguish between affordable rental rates versus inflated rental rates. Many tenants learn the opposite the hard way.
Select the best lease length: While a five-year lease term (seven or 10 years in some cases) is still standard, it is not necessarily the best term for your company. Three years, or even one year, for some tenants may be better if the cost of leasehold improvements is low enough, because these are generally amortized over the life of a lease term. The leasing agent – motivated by a greater commission – might want you to sign the longest lease term possible, but the landlord may be flexible.
Change the day rent is due: For many small or medium-sized tenants, the monthly rent represents a large portion of their overhead. Paying the rent on the first day of the month may be a hardship because other expenses such as payroll, loan payments and equipment leases also come due that day.
Reduce your square footage: Many tenants who hire the Lease Coach to negotiate a rent reduction are suffering from leasing too many square feet. For some companies, a reduction in their leased area now, or at renewal time, or by simply moving at renewal time, will solve their problem. With a proper space plan, some tenants could reduce their area by 10% to 30% with minimal inconvenience. This reduction in gross rent could easily justify the process.
Remember termination clauses and outs: A good lease agreement may include an early termination clause. Such a clause can be based on the landlord maintaining high occupancy levels – especially if your business relies on traffic. For franchisees, your termination clause could be based on the continued existence of your franchisor. Some business owners like to have the right to terminate in the event of personal or family illness or even poor sales volume.
