1. Make a list about your budget, your must-haves, and your nice-to-haves. Do your homework before you start.
The very first thing you need to do (before even looking at locations) is to settle on your exact budget, what things you absolutely must have, and what things would just be nice to have. For instance, you probably want to be able to sublease should things go belly-up (particularly if you’re brand new), but you may be able to forego free parking. Those nice-to-haves will end up being your negotiating chips.
Pull out a map and mark the boundaries of where you are willing to site your business. Use the Internet to pinpoint locations of competitors and complementary businesses that might help your business become more successful. Also, talk with existing tenants at prospective sites. Good preparation is an excellent substitute for novice negotiating skills.
2. Get an agent or lawyer to negotiate for you.
Before jumping in headfirst, you may wish to get a real estate agent to negotiate your lease for you if it’s within your budget. Agents, after all, are experts. They’ll be able to get your deals and clauses that you may never have noticed. Find one here.
Lease rates can vary two to three times within the same building, depending on desirability and demand for a particular premise, time of year, visibility, walk-by or drive-by traffic, accessibility, the shape of the space, the quality of the neighboring tenants, anchor tenants, and the strength of your franchisor's name.
3. Do negotiate on more than one location at the same time.
To negotiate from a place of strength, you should do it on more than one location at the same time. This will give you the ability to walk away from at least one of the negotiations, putting you in a better position.
4. Don’t pay asked base rent.
Landlords ask for a rent up front that is the maximum amount of rent they think a tenant might agree to pay. But landlords don’t actually expect anyone to agree to that amount. Come in with your counter offer at 10-15% beneath what they’re asking for. After that, you’ll typically be able to work out a number in between that works for both of you.
The landlord's leasing representative, upon your request, will prepare a lease proposal or an Offer to Lease containing suggested Terms and Conditions for your tenancy. While this is not a site selection tip per se, it is an integral part of the site selection process. Franchise tenants who receive an Offer to Lease first will be nicely positioned to counter-offer or negotiate. To get the best lease deal possible, you want the landlord to pursue your tenancy--not vice versa.
5. Check the square footage yourself.
Space measurements can get out of date easily, as each commercial tenant tends to change the space to suit their needs. You’re renting the usable space, and that square footage may have shrunk significantly. It’s also not entirely unusual for landlords to include in the square footage parts of the common area of a building or to simply inflate the square footage.
The exact square footage is important because commercial rent is paid by the square foot. You don’t want to be paying for square feet you can’t use. Measure the space yourself and if it comes up as smaller than what the landlord is claiming, you’ve got yourself a discount on rent.
6. Get better base rent by negotiating a longer lease term.
Your goal of base rent negotiations is to achieve the minimum lease length with the maximum benefits. Work with your landlord to figure out what they’re willing to give in exchange for committed tenancy.
A method that may help you here is to negotiate future renewal options. If you can’t get exactly what you want by committing to a full 3-year lease, you may, for instance, be able to compromise on a 2-year lease with an option for renewal with a very low rent increase. (As a note: you should negotiate on the renewal options anyway. Getting future rent increases capped is always a good idea.)
Again, brand new retail businesses may find themselves better off accepting the higher price of a short-term lease the first time around, while focusing on getting favorable termination and subleasing clauses for peace of mind.
7. Look for free rent.
Free rent is a popular promotion for landlords and it can also be a great compromise on a rent discount. A landlord may not wish to lower base rent because it could lower the value future tenants are willing to pay, but they may still be willing to give you a discount via free rent periods. On a 3 year lease, a single free rent period per year will result in a total of an 8.3% discount on rent, for example.
Tip: When negotiating free rent periods, ensure that all other expenses (maintenance, utilities, etc.) are also waived that month.
8. Ask for a fair “cure” period.
A “cure” period is the time period you are given in order to rectify breaching the lease. The most common example is being late on rent payments. Without a cure period, you may be subject to paying fines or legal action for something as simple as forgetting to pay rent for a single day. You don’t want a fairly small mistake like that to end up getting so out of hand. So don’t sign the lease until you have a cure period written in. A cure period should be one of your non-negotiables, especially because most-all landlords are happy to agree to one.
9. Negotiate lower early termination penalty fees.
Everything’s negotiable, even those early termination fees. New retailers may find that it’s worth fighting to lower these fees in order for peace of mind.
10. Add a sublease clause.
A sublease clause is good to have added in either in addition to or instead of lower termination fees. Should you need to move to another space, subleasing will allow you to recoup lost rent.
11. Have a co-tenancy clause written in.
A co-tenancy clause is a clause which allows you to break your lease should a major tenant that drives business to you in the same multi-tenant building move. This especially comes into play for small retailers operating in a strip mall with a popular retail behemoth like Target or Walmart. These big box stores may provide the initial attraction to your location and ultimately drive a lot of traffic through your doors. If you’re leasing in a situation like that, you want to make sure that you can break your lease if something happens to that big store.
12. Include a clause preventing your landlord from renting out space in your building to a competitor.
Requesting to have a clause written in preventing your landlord from renting to the competition can be a smart idea. It can also be a good nice-to-have that you don’t mind negotiating away for something better.
13. Pay attention to the HVAC responsibility.
The responsibility for the space’s HVAC system is small detail that could end up costing you thousands. See if you can turn that responsibility over to the landlord. And failing that, you can get caps set on your per year out-of-pocket on the system.
14. Haggle over the fixturization period.
Chances are, you’re going to have to redo the space somewhat to fix it up for your store. It may be a simple as hanging a few things or it may be more intensive. Either way, you shouldn’t accept the responsibility to pay for the work and the rent of the space at the time. Some landlords may opt to redo the space for you – provided you’re paying rent. Others, however, may prefer you redo the space yourself, but be willing to provide free rent during the fixturization period. (For intensive changes, you should seek for up to 120 days of free rent to allow for permits to be obtained and then for construction to occur.)
15. Negotiate for all available perks.
As mentioned earlier, it may be hard to haggle with a corporate landlord over certain things like the base rent and lease structure. But corporate landlords will offer other things that you may be able to get for free, such as free employee parking or wi-fi. And those perks could save you quite a bit of money in the long run, so don’t settle just because the landlord makes it seem like nothing can be negotiated on. That’s just their opening tactic.
Conclusion
Negotiating a lease can be daunting, but as long as you give yourself plenty of time to negotiate the lease before you need the space and negotiate on multiple locations at once, you’ll be operating from a place of strength. You likely won’t get everything you want, but you can certainly get everything you need.
