by Rachel Stockton

Created on: December 18, 2010

Entering into a commercial lease agreement should never be taken lightly.  Indeed, for most businesses, rent is one of the largest overhead expenses that will be incurred throughout the duration of the contract.

Negotiate, Negotiate, Negotiate

Landlords, especially in harsh economic times, are often willing to liberally negotiate with a potential renter.  In the midst of a downturn in the economy,  the higher vacancy rate often forces them to make certain concessions in the contract in order to make up for lost rental income.  Certainly the lessee is in the driver’s seat during such occasions.

Initial Lease Terms

In crafting out a lease agreement, the first order of business is to decide which type of commercial agreement mutually benefits both the lessor and the lessee.  Following are the most common:

*Flat lease – this type of agreement is the most straightforward.  A monthly fee is assessed and agreed upon by both lessor and lessee, with an understanding that rent will not fluctuate for the duration of the contract.

*triple-net lease – under this arrangement the tenant is required to pay for certain expenses that would typically be covered by the landlord, such as repairs, taxes, insurance, and upkeep/maintenance.  Specifics of the arrangement need to be spelled out in the contract so there is no confusion regarding maintenance costs.

*percentage lease – this option is typically pursued by retail establishments who experience seasonal and/or other fluctuations in income.  Once a minimum base rent is established, a percentage of gross or net sales can be negotiated.

Other Lease Agreement Options

In addition to lease type, the most basic issue that should be addressed is length of stay.  Businesses must decide on how long they can feasibly stay in the location in question.  Once this determination is made, a landlord may be willing to reduce the rent should the lessee sign an agreement to rent the space for an extended period of time.   Lessor and lessee alike should consider best and worst case scenarios before the agreement is signed.

Should fiscal reality contradict forecasts, the ability to be freed from the lease obligation could potentially be the difference between being able to limp along until the situation turns around, or going under because overhead heavily outweighs income.

Additionally, the lessee may want to have the option to sub-lease part of the

• 1
• 2
• Next Page >>