An office space is always going to be one of your business’s biggest expenses, so it is in your best interest to negotiate the most favorable least possible. While leases do vary, there are a few common points of discussion that come up in most lease negotiations. Before you sign a lease, here are a few questions to raise with the landlord, as suggested in the article “How to Negotiate a Better Commercial Lease”:
#1 How long is the lease and what is the rental rate?
Remember that landlords usually offer better terms for tenants who agree to longer leases. However, this is not in your best interest as a tenant, because you want to be able to renegotiate the lease or leave if you need to. A good way to meet in the middle is to try to negotiate for a two year lease with several options for renewal.
Try to limit the rent increases for later renewal terms to small amounts based on inflation or the cost of living, rather than on “fair market” price—this price does not take into consideration your years as a stable and loyal tenant. Be cautious with incentives the landlord offers upfront, because this most likely means that you will somehow have to pay more later. Agreeing to base rent increases on the Consumer Price Index (CPI) is one way to protect yourself from unfair or unexpected escalations.
#2 Are there any limitations how how you can use the space?
One thing to distinguish early on is exactly how much of this space you can actually use, since usable square footage is different and notably smaller than rentable square footage. Additionally, leases often include a list of the activities the landlord allows in the space. You might not think much of this if your business only has a single purpose at the moment, but it is to your benefit to request “all illegal uses” in your lease in case you want to expand to other activities as new opportunities arise.
#3 What extra costs are included in your lease?
Just because the rental rate is low does not mean you won’t end up paying a significant amount of money each month. Be aware that your lease could hold you responsible for other costs, including security, utilities, maintenance, repairs, and a variety of other services. The best way to handle this is to try to negotiate caps on the amount you have to pay for any of these extras. Another expense you should address is the cost of making any improvements to the space. Talk to your landlord about what you have permission to do and how the cost of this work will be divided between you.
#4 Do you have first rights to another space in the property?
This can be useful if you have an eye on a better spot in the building or think you might need additional space someday. “First refusal” or “First offer” rights mean that the landlord has to offer you a space and give you the opportunity to accept or reject it before opening it up to a new tenant.
#5 What happens if you need to share the space?
Talk to your landlord about assignment for subleasing options in the event that your business is not doing as well as you hoped and needs to rent out some of your space to another tenant to stay profitable. Make sure you clearly spell out with your landlord what their policy is in regards to subleasing or sharing a space. Be careful of very strict leases that treat a change in leadership in your company or even additional investors as assigning or subleasing the office space.
While you might not get everything you want in a lease, it is important to at least address these issues and consider looking at other spaces if a landlord is particularly inflexible.