Negotiating a lease can be a tricky affair for both the landlord and the tenant, with each side angling for maximum benefit via terms that are most favorable to them. MacRo, Ltd. explores the top lease deal breakers in this blog.
Negotiating a lease can be a tricky affair for both the landlord and the tenant, with each side angling for maximum benefit via terms that are most favorable to them.
Some negotiations are lopsided, particularly when an experienced owner encounters a first time office space renter that’s made the often fatal mistake of not hiring an expert broker, or even worse, choosing to partner with a residential real estate agent that “dabbles” in commercial.
Regardless, each party in a lease negotiation-when the playing field is level-is typically focused on securing favorable terms, not necessarily on mutual benefit. With that in mind MacRo presents some of the most common lease deal breakers we’ve seen blow up in owners and tenant’s faces:
Resistance to put lease terms in writing and insisting on a good faith agreement is a disaster waiting to happen for either party. Always, always, always get the agreement in writing and acquire the appropriate signatures with legal advisors in tow. If there seems to be resistance on the potential tenant’s behalf to sign a contract, or on the owner’s side, get up from the table and get out fast. This is not the deal for you. This seems like common sense, but we’ve seen emotions run wild and more mistakes like this than you’d think.
Very Long Terms
If an owner/landlord is requiring you to sign a lease commitment you’re not comfortable with stick to your guns. Locking a tenant up to a very long lease is ideal for the owner in that it secures cash flow and eliminates the hassle of finding a new tenant every 3 to 5 years. If the owner/landlord’s lease term is over the top, and they’re not willing to make other concessions to entice you to sign, it’s time to get up from that table again and move on to another office space.
A reasonable lease term depends on the type of office space but can range from 1-5 years. That said, lease terms are always negotiable. As an owner/landlord you need to be reasonable about your ask, and if you are a prospective tenant you need to protect your interests by not over committing to a landlord.
For owners, being upfront and transparent about what is and is not included in the base rent is always the best long term policy. For tenants, it’s critical to understand what your rent pays and what additional fees might be incurred due to the way the lease agreement is written.
Some lease rates are all inclusive, some are not. If the lease agreement does not clearly define who pays for what, work with the owner/landlord to clarify it in writing. If there’s resistance, or the fees remain unclear, walk away if you’re the prospective tenant. If you’re the owner/landlord you’ll need to rethink your negotiation practices moving forward.
For a break down of different types of lease fee structures, click here.
Strict or a Non-Existent Renewal Policy
There needs to be a renewal clause in the lease agreement though the type and clarity of the renewal policy could be a deal breaker.
Once your lease term ends, the lease agreement should clearly explain the renewal terms and process. In essence, as a tenant in good standing, there should be a period where you have an opportunity to re-up on your lease before the owner/landlord goes back out to the market with your office space.
Any lease that requires you to renew, or outlines terms skewed to benefit the owner/landlord is a no-go. On the owner/landlord side, shaping a mutually beneficial renewal policy is a way to entice signatures on longer leases and perhaps win other concessions in the agreement.
Completing a mutually beneficial lease agreement can be complex and fraught with risk for both the property owner and prospective tenant. It’s important to be generally aware of the pitfalls detailed in this blog, but there is still another step that’s even more critical.
And that’s hiring a commercial real estate expert to help you negotiate a strong lease agreement. MacRo Ltd. has been helping bring owners and tenants together for decades; we have an unmatched understanding of the lease negotiation process and the nuances of the local Frederick market.
Call us today at 301-698-9696 or become a MacRo Insider to receive more commercial real estate tips and insights by clicking below.