Negotiate Your Lease

Check Zoning Before you Sign

NOTE: Do not sign a lease until you've checked with the city to make sure the building can be used for your type of business.

The Lease

Letter of Intent (LOI)

Tips for working with landlords

  • Talk to current tenants and neighbors to see if the landlord maintains the property well and that they are happy with their lease arrangement.
  • Property maintenance and taxes are part of the lease negotiations.
  • The prospective tenant should be made aware of all deferred maintenance issues especially those related to life and safety.

Negotiating the lease

Check out the low-cost and FREE courses at SBDC on how to negotiate a lease.

Lease terms to negotiate:

  • Length of lease: Month to month or over a number of years?
  • Price per square foot.
  • What sort of property insurance is included (e.g. fire, flood)?
  • Are utilities included in the lease price?
  • Who is responsible for building maintenance and repairs and bringing the building up to code?
  • Are renovations or modifications needed? These are also called Tenant Improvements (TIS)
  • If so, what are the costs?
  • Is the building up to code?
  • Who will be responsible for obtaining the necessary permits and inspections from the City? Tenant improvement costs may be negotiated as part of the lease/rent.
  • How much rent can increase each year?
  • What happens if your landlord decides to sell the property, or a neighboring anchor tenant leaves?
  • Options to sublet the space, transfer the lease to a new business owner, or terminate the lease.

Consider the the time it will take to get your business up and running

If you're planning to make renovations, serve alcohol, or conduct other activities that require a license or permit, keep in mind that there may be delays that are out of your control. Try to build flexibility into your lease in case it takes longer than you thought it would to start bringing in paying customers.

Draft and Sign the Lease

Landlords often have a lease template they use and will fill it in with the terms you agree on. You can meet with a person at the Small Business Development Center (SBDC) who can help you review the quality and financial commitment of your lease.

Professionals who can help

It's always a good idea to consult with a professional or an experienced mentor who can help make sure you're considering all of the angles. Understand the different players in the commercial real estate world and their roles: Commercial brokers, property managers, leasing managers, and property insurance agents.

Commercial Brokers

Commercial brokers work on commission which means they represent you in the negotiations. A professional real estate broker will ensure your interest is protected. Understand the lease terms such as who will be responsible for repairs, taxes, common area expenses, etc.

Brokers are not allowed, by law, to render legal advice, and a lease is a legal contract. It is actually NOT illegal in the state of CA for a broker to represent BOTH the landlord and the tenant simultaneously in the s

Beware of unscrupulous Brokers. Brokers only get paid if & when a lease is signed. They may push you into making a deal that does not serve you well, just so the broker can get a commission. One way to avoid this is to choose a different commercial broker than the one representing the landlord.

Avoid using a residential real estate agent to negotiate a commercial lease for you. Successful negotiation can be stressful. A commercial real estate broker negotiates for a living, and can provide a buffer between the sometimes rocky process and the client. Negotiations can be complex, and it is helpful to have an advocate on your side.

Real Estate Lawyer

Retail leases are detailed, complex legal documents. Having a leasing specialist look it over will protect your interest. They will help with the lease review, interpretation, and negotiation. Leases are legal documents no one likes to read. They are confusing and full of jargon that often obscures meaning. A good real estate lawyer can read and interpret these legal documents, and help negotiate lease clauses that could be harmful to the client.

Resources

For Restaurant Commercial Real Estate Leases

They Restaurant Advisory Group advises restaurants. They can put you in touch with all types of service professionals a restaurant needs. Examples: vendors, payroll and accounting people, insurance people, attorneys etc.