7 Secret Tips to Lease Negotiating

Here are 7 secret tips for negotiating commercial lease terms:‍

Everything is Negotiable

Even when one side or another claims they will walk away from the deal, they may or may not. One common example is with corporate guarantees. One retail deal I worked on was with a landlord who claimed that every one of their tenants gave a corporate guarantees and they would never sign a lease without one. The tenant, a billion dollar company with impeccable financials said they never gave guarantees. When the landlord realized that the tenant would actually walk away from the deal over this, they got creative and all of a sudden didn’t need the guarantee anymore.

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Get TI and Free Rent‍

Get the Landlord to do work and give free rent, even if you don’t need it. Landlords understand that they may need to contribute something to the deal to help make it happen. As always, the exception is in a hot market when tenant interest is so high that the landlord won’t need to do any work to get deals done. New paint and new carpet is normal, but a motivated landlord may contribute more than paint and carpet in order to get the deal done. Depending on the terms, they may often times grant an initial free rent period in order to get the tenant moved in and comfortable.

Be Surprised

This may sound like a small thing, but when you hear the lease rate,  train yourself to always say, “Wow, that is really high”  and when you hear what the landlord is offering for tenant improvements, train yourself to say “Wow, that’s really low.” Always communicate enough interest in the deal to be taken seriously but enough dismay at the pricing so that the landlord gets uncomfortable.

The 15% Rule

Remember the 15% rule. Listing agents often recommend an asking lease rate of about 15% over what the landlord would be satisfied with signing. For example, if a landlord issues a proposal for $10 per square foot, it would be more than reasonable to respond at $8 or $8.50.

Know the TRIC of Leasing‍

Trick, or TRIC, stands for Term length, Rental rate, Tenant Improvements, and Credit strength. The ideal scenario for a landlord is long term lease, high rent, no contribution to tenant improvements, all for a tenant with strong credit history. Asking the landlord to compromise on one or more of these variables will cause the landlord to make it up elsewhere. For example, if a tenant has poor credit, they can expect to have a high rent and no help on improvements. The opposite is also true. If a tenant is able to offer something exceptionally favorable the landlord, the landlord will be able to offer a better deal on the other terms. If the tenant has very strong credit, the landlord will likely settle for a lower rent and contribute more tenant improvements.

Landlords Hate Options‍

Landlords do not want to grant renewal options for free. If a tenant has the unilateral option to extend a 5 year lease with a 5 year option, the tenant controls the property for 10 years but the landlord can only plan for 5 years. A 10 year lease with no option is far more advantageous for the landlord because they can amortize any expenses over a longer period of time and usually negotiate better financing terms with lenders. Tenants should expect to pay for options and get concessions for a longer base rent term.

Understand Lease Guarantees

Landlords want corporate or personal guarantees, but they don’t typically need them. If the tenant can offer a corporate or personal guarantee of some kind, they will likely get some wiggle room on other terms.

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I’m David Skinner, and this is the CRE Coach, where together you and I are lifting the hood on Commercial Real Estate.