Four Factors to Consider When Negotiating a Commercial Real Estate Lease

file4741281776353.jpgFinding a good location is critical to the success of a small business, but even the best location in town is of no use if the business cannot negotiate acceptable lease terms. As a general rule, commercial lease terms will favor the landlord. Unlike residential leases, however, which are frequently boilerplate and inflexible, a business may be able to negotiate improvements to the lease terms. Unambiguous provisions for rent and expenses are critical to businesses leasing office, retail, warehouse, or other commercial space in New York City and northern New Jersey. Here are four key factors to consider when negotiating a commercial real property lease:

1. Term of the Lease

Most commercial leases have a specified length, or “term,” usually expressed in months or years. A short-term lease is often preferable for small and startup businesses, as it allows the business more flexibility to respond to changing needs. A business that grows quickly, for example, may need to move to larger accommodations before the end of a multi-year lease. Landlords may prefer long-term leases for the assurance of a steady income stream from the property.

A lease agreement should also specify what happens at the end of the lease term. The parties may be able to negotiate new lease terms, continue the same lease agreement for an additional term, or continue the lease month-to-month.

2. Setting the Amount of Rent

The amount of rent may be subject to negotiation, depending on the location of the property and the conditions of the surrounding market. Tenants often have an easier time negotiating favorable rent if they agree to a longer-term lease. With a lease term of six months to one year, a landlord may demand a higher amount of monthly rent than if a tenant agrees to a lease lasting multiple years.

3. Expenses, Maintenance, and Repair

In any type of lease where the tenant pays a share of the property’s maintenance costs, property taxes, insurance, or other expenses, the percentage paid by the tenant should be the same as the total percentage of the property the tenant occupies. The lease agreement should specify the tenant’s pro rata share of these costs, and should apply it evenly. It should also clearly identify which maintenance and repair costs are the tenant’s responsibility, which are the landlord’s responsibility, and how the parties can address requesting and paying for repairs.

4. Subleasing, Cotenancy, and Early Termination

A tenant will benefit from flexibility in a lease agreement’s provisions for use and occupancy of a property. If a business discovers that the leased space is too large for its needs, or that its revenue does not support payment of the rent, it might be in both the tenant’s and landlord’s interests to find an alternative to defaulting or terminating the lease. A lease agreement should specify whether or not a tenant may sublease all or part of the property, or whether it may bring in an additional business or individual as a cotenant. It should also address default by the tenant, or early termination by either party, since termination of the lease may be preferable to strict enforcement of its terms in some situations.

Samuel C. Berger, PC’s business attorneys represent New York and New Jersey businesses and entrepreneurs through fixed-fee legal service packages. We assist businesses in a wide range of legal issues, and we work to help our clients understand their rights and obligations, allowing them grow and run smoothly. To schedule a confidential consultation with a member of our team, please contact us today online or at (212) 380-8117.

More Blog Posts:

Commercial Real Estate Leases for New York and New Jersey Small Businesses, New York & New Jersey Business Lawyer Blog, July 3, 2013
New Jersey Governor Signs New Law Providing New Funds for Businesses in Development Areas, New York & New Jersey Business Lawyer Blog, January 17, 2012
Major Downtown Newark Development Offers Opportunities for Small Businesses, New York & New Jersey Business Lawyer Blog, January 12, 2012
Photo credit: Karpati Gabor from morguefile.com.