Unlike residential leases, commercial leases tend to be more complex because different businesses have varying needs. There are fewer legal protections as well. On the bright side, they are also more negotiable.
As the property owner, you want a reliable, long-term tenant. You may be willing to offer a reduced initial rent to attract them. Similarly, your potential tenant would want to secure your prime location for their business. They may be willing to agree to a longer lease term or take on additional maintenance responsibilities for it.
To ensure that the terms benefit you and protect your interests, make sure to ask three crucial questions during negotiations.
What is the intended use of the leased space?
Understanding how a tenant plans to use the space is vital. This will help you make sure that you are still compliant with zoning regulations and existing lease restrictions. For example, if a tenant wants to use the space for a high-traffic retail store, you might need to assess the impact on parking and wear and tear on the property.
Clarifying the intended use can also help you assess if you need to modify or renovate the space. It’s also important to specify who is responsible for making these improvements or alterations to the property.
What is the potential tenant’s financial background and credit history?
A financially stable tenant is more likely to fulfill lease terms reliably. Make sure to:
- Request financial statements
- Review credit history
- Check references to gauge their ability to meet lease obligations
This information can provide insight into what it would be like to have them as your tenant. Not only can it help you avoid potential payment issues, but it can also help you set appropriate security deposits and feasible lease structures.
What are the expectations regarding lease terms and conditions?
Clearly communicate with your potential tenant about both parties’ expectations regarding:
- Lease duration
- Renewal options and termination clauses
- Rent escalation clauses
- Responsibilities for maintenance and repairs
For example, a tenant may expect a cap on rent increases, which could be a point of negotiation. Discussing these terms upfront helps avoid future disputes and ensures both parties have a clear understanding of their responsibilities.
A well-negotiated lease can protect your property and your investment. If you’re unsure about any terms, consider consulting with a business attorney to ensure all aspects of the lease are clear and enforceable.