Tenants are frequently surprised by the number of negotiable deal points in a commercial lease. Having a clear understanding of your options, how to leverage them, and the effect they can have on your business will help you craft a strong deal that best suits your needs.
Let’s start with a few key terms:
Term: also known as the Primary Term, this refers to the length of the lease
Base Rent: the amount per square foot you pay in rent for the property
Escalations: the amount the base rent increases each year of the term to account for inflation
Abated Rent: the amount of “free” rent the Landlord provides at the start of the term
Tenant Improvement Allowance aka TI: a set amount per square foot the Landlord will reimburse the Tenant for hard costs associated with their buildout
These deal points are typically the backbone of a lease. However, even within these few deal points, there are many paths to a successful deal.
There are a plethora of other items to be negotiated once those fundamentals have been established – personal guarantees, renewals, parking, signage, exclusivity, Tenant’s responsibilities, Landlord’s responsibilities, expansion clauses, subleasing, OPEX caps, audits, and more. Each business and every property are different, so it’s important to take all factors into consideration before submitting your LOI. A broker working with a Tenant who is considering three different properties, may write three very different LOIs. A good broker will understand your desires and limitations and find a way to structure a deal that is appealing to both parties.
If you want to learn more about the topics touched on above, discuss finding a new location, or need assistance with commercial real estate in any capacity, please contact me, firstname.lastname@example.org. I look forward to speaking with you.
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