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June 21, 2016
What to Expect When Negotiating a Commercial Lease

One of the biggest steps in running a business is securing a commercial lease and negotiating its terms with the landlord or landlord’s lawyer. But contrary to popular belief, there is no such thing as a ‘standard’ commercial leasing agreement.

Those who become too emotionally attached to a particular premises and then accept a prospective landlord’s first offer are going to do themselves and their business a disservice. Any agreement you make will affect much more than just your bottom line so it’s crucial you make informed and impartial decisions.

Terms That Are Typically Negotiable

Ideally, you’ll want to pay close attention to such talking points as: rent payment schedules, if/when potential rent increases will take effect, the length (or Term) of the lease agreement, your responsibilities for upkeep and/or maintenance, and what provisions for subleasing are place, if any.

These are just a few of the terms that may come up in your negotiations with the landlord and you should put time aside to evaluate your circumstances and plan your budget accordingly.

Drawing Your Lines in the Sand

Naturally, a commercial lease is written to favour the drafting party. And while this does put you in a less-than-advantageous position, a potential tenant is never without some leverage when entering into negotiations.

You are talking about exchanging large sums of money for the right to conduct your business from a central location after all.

Firstly, identify your broader leasing requirements and group them into those that:

• Are essential to the success of your business undertaking

• Are desirable and would be beneficial to have moving forward

• You are willing to compromise on as they are non-essential

• Have a negligible effect or no effect at all on your business

Navigating these talks may require a bit of back and forth and compromise from both parties before an agreement can be reached. During this time a number of changes will be introduced with some points being hard-won and others not so much. This will go on until you’re both happy and agree to the terms in writing or one or both parties walk away.

Getting a Second, Legal Opinion

If you do choose to sign, you will have made a formal business transaction and entered into a legally binding contract. While you can certainly take a DIY approach to negotiating a commercial lease, it is highly recommended that you seek out professional legal advice from a trusted source.

This is one of the best ways to ensure you don’t make some easy-to-avoid mistakes and that the lease will be an asset to your business instead of a liability.

If you have any questions about a commercial lease or sales agreement that has been extended to you, contact David Lewis, commercial lawyer and Partner at LBH on dlewis@lbandh.com.au