Tips for Negotiating a Commercial Real Estate Lease

Tips for Negotiating a Commercial Real Estate Lease
Tips for Negotiating a Commercial Real Estate Lease

Feb 6, 2022

Commercial property in the Kelowna area continues to be in demand. Successfully negotiating a commercial lease is crucial in getting the property you need for the terms that suit your business.

Negotiating a Commercial Lease: Read Everything

Not all commercial leases are equal, and landlords don’t have to use a template or a standard agreement when proposing a lease. Even if you’ve been dealing with commercial leases for decades, the next one you receive might have a clause or some hidden costs that are totally unexpected.

Read the lease over entirely—preferably with your realtor, who should have a solid understanding of commercial leases, terms, and legal requirements.

Although a month-to-month rental may sound easier, you’ll be at risk of eviction with little notice and you could lose out on any improvements you’ve made to the property. Stick to a formal lease so your investment is protected.

Remember Your Needs

Chances are, you spent some time with your realtor talking about your needs for a commercial space before looking at properties. Will you be expanding in the future? Adding in another line of products or services? Increasing your team?

Keep these needs at the front of your mind as you review the lease so you’re focused on getting what you need. A shorter lease can be a good idea if you’re not sure about your future needs, and, of course, a longer lease will give you some security if you have a long-term plan.

Double Check Your Neighbors

Make sure the area suits your clientele. If you’re going to have customers visiting, does the area accommodate them? How are access and parking?

Is the neighbourhood appropriate for your business? What is it expected to look like in five or ten years? And see if you can talk to a few people who already work with your landlord. What’s the reputation?

Are there any competitors close by? Speaking of competitors, you can ask your landlord for a competitor clause so they must get your consent before placing a competitor in the building after you sign your lease.

Lawyer Up!

Yes, this is one area where you need a commercial lawyer—and your realtor has probably already told you that! Commercial leases can be legally complex, and you need a commercial lawyer to make sure your business interests are protected.

Hiring a commercial lawyer now can save you a lot of headaches and expenses later. It’s always worth it.

Commercial Leases 101

Gross Rent Lease-You pay a flat rate to the landlord what includes rent and incidentals (things like utilities, property tax, repairs, and maintenance for common areas).

Modified Gross Lease-You pay a flat rate and share incidental costs with the landlord

Net Lease-You pay the base rent, plus another cost like property taxes, insurance, or utilities, and the landlord covers other incidentals

Double Net Lease-You pay base rent plus property taxes and insurance

Triple Net Lease-You pay base rent, incidentals, and other costs for operations and maintenance

Percentage Rent Lease-You pay base rent and a percentage of your gross sales over a set minimum. This one’s more common in retail locations with multiple tenants, like malls.

Final Tips

Lease payments can include—and exclude—a huge variety of additional costs. Once you know what type of lease the landlord is proposing, itemize every single cost that you’ll be responsible for. All of those costs need to fit with your budget.

Make sure you understand what the conditions are for terminating the lease. Do these work for your business? On the other side, what are the renewal conditions?

And (the fun part for realtors), how can the landlord incentivize your lease? After all, you’ll be an excellent tenant!

Many clauses in a commercial lease can be negotiated. Work with your realtor to get the lease that’s right for you. Take the time to double-check every clause, and ensure the lease is set up with your best interests in mind.

If you are considering Leasing, Buying, or Selling Commercial Property in the Okanagan, call me at 250.448.5008 or email samantha@shopcommercial.ca and I would be happy to discuss your goals with you.

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