When leasing commercial or retail premises, certain points of negotiation always create pain for the parties involved. Here are some of the most important and common:
- Landlord wants high starting rent
- The tenant wants a big bonus
- Tenant wants huge option term for additional potential occupancy
- Landlord wants a tenant but is not ready to provide an incentive to attract them to the property
- The last tenant left the place in a mess and the landlord won’t fix it until a new tenant is found
- The landlord will not restore the premises until they have a tenant on a signed lease
- The lessee does not want to give any form of security as security in the event of default in the lease
These are the most common issues for negotiating an average lease. Most landlords also believe that their property is better than anything around and, based on this, will not negotiate a rent drop to rent the premises. Very often you hear that the landlord is willing to wait and see what the next tenant comes up with.
In this market, the number of active tenants looking to move into new premises is limited. In some cases, there may be 5 properties available for each tenant. The urgency in the rental agreement is not high from the perspective of the tenant; owners need to know that. They can only ask one tenant to bid for the premises.
When it comes to renting space, it’s not where you start your lease and rent, but it’s more important to know where you’re headed and where you’ll end up. Rent reviews during the term of the lease can support rent increases to improve the lease, provided the realtor negotiates the lease well.
So what can you do with this list of common rental issues? The best way is to use the pain of vacancy (in the case of the landlord), or the pain of needing new premises (in the case of a tenant) to move the deal forward. You need to work with the offer you have and not hope that another will come soon to replace a low offer today.
Take today’s rental offer and turn it into a value-for-life lease. Show the landlord the real value of the lease by performing an analysis of the transaction using a net present value approach on the lease cash flows over the life of the lease. It is remarkable how the landlord will soften his bargaining position when the value of the long-term lease is explained in numbers.