Commercial Real Estate Leasing
Most businesses lease space, and many enter lease contracts that constitute a significant financial commitment without meaningful attempts to negotiate the terms. A lease is like a partnership agreement setting out the parameters of a business relationship.
The true test of a well planned agreement occurs when problems arise. If the lease has not been carefully drafted, a minor issue can become a major problem. Standard leases do not exist, and whether forms appear standard or preprinted, terms can be negotiated. A standard form lease represents the landlord's wish list and may not serve a tenant’s interests should issues arise.
Here are key terms to be negotiated in a lease:
- Rent and security deposit amounts
- Assignment of responsibility for additional expenses of operation, including insurance, utility expenses, property enhancements and maintenance
- Permitted use and enhancement of premises, including subletting
- Terms of lease renewal and cancellation
Option for addition or reduction of space if needed by tenant
The negotiation process begins with an evaluation of the tenant's needs and a formalized Request For Proposal (RFP) representing a compilation of these considerations. The RFP, once presented, becomes the basis for a systematic negotiation procedure and helps to minimize time and legal expenses related to misunderstandings during the negotiation process. An RFP, and later a resulting letter of intent, should be provided as not binding and imposing no legal obligation.
Factors including competition for space and the length of time the space was vacant can impact the amount of pull a tenant has in negotiation. Provisions for options to extend or terminate, liability limitations, escalation and security deposit, rights of first refusal included in the RFP also can impact leverage.