When it comes to commercial property leasing and performance, the lease that you negotiate is really a key part of the process. Lease negotiation today can be protracted and lengthy. The landlord and or the property manager need to be aware of lease negotiation practices that apply to their property type and local area, and have a system to implement when they are leasing vacant premises.
At the outset, it should be said that a good property solicitor is highly valuable to the lease negotiation process. The commercial real estate agent is really only there to negotiate the lease and is not a lease preparation specialist. The agent brings the parties together through a comprehensive marketing campaign targeted to the right type of tenants. That is why they are paid the commission. The solicitor should then take over the lease documentation process to ensure that a correct and comprehensive lease document is created for the particular occupancy situation.
There are many types of landlords out there owning diverse and different properties. Regrettably the smaller property investors commonly tend to cut corners in legal costs or seek low cost lease documentation. The end result is a lease document that generically relates to the property.
It is best to get a solicitor involved in each and every lease document after the agent has negotiated the basic elements of the lease. A heads of agreement is appropriate for this process and that agreement can then be given to the solicitor to structure final documentation in legal form.
Here are some other main elements to consider in negotiating leases in commercial or retail property:
- Form a decision as to how long the premises should be leased in the initial term. This term should comply with the changes to the property that the landlord requires including any refurbishment strategies or relocation situations.
- Many landlords do not like options for a further term being given to tenants. Whilst you have to comply with property legislation relating to leasing, the issue of options really does need to be considered before the tenant asks for such. Options should only occur if the landlord can comfortably allow the tenant to remain in occupancy in the location. Due regard should also be given to the other adjacent tenants in occupancy and their needs for expansion.
- The type and amount of rental to be asked for should be clearly set before the marketing of any vacant tenancy occurs. Whilst it is permissible for a landlord to negotiate rental downwards, it is important that the asking rental is comparable to market rental; otherwise you won’t get any enquiry from the marketing of a vacancy.
- Understand the outgoings for the premises and how you are going to recover those costs for the landlord. The decision here will have impact on the net and gross rents that you may select.
- Prepare the premises for inspection and presentation. Whilst many landlords prefer to not spend any money until tenants are found, this process can be counterproductive and dissuade tenants from entering into negotiation for the vacancy. Essentially a vacant tenancy needs to look its best before tenants are taken through for the inspection. To achieve this you may need to paint the premises, reinstate the ceiling tiles, and replace the floor coverings.
The negotiation of a commercial or retail property lease is a planned process. By taking these and other steps early you can reduce the number of problems that you have in the lease negotiation process.