In commercial real estate, successfully negotiating lease terms can make a huge difference in controlling expenses and reducing future risks. It's not just about finding the right location; it's also about securing favorable terms that protect your business over time. Whether you're a tenant seeking to open a new space or renew an existing lease, being aware of these critical points will help you stay one step ahead.

Here are four essential tips to include in your lease negotiations to help reduce occupancy costs and minimize risks.

1. Have the Landlord Guarantee HVAC, Electrical, Plumbing, etc. for a Time Period

Why it matters: The upkeep of essential systems like HVAC, electrical, and plumbing can be expensive and disruptive if problems arise. Ensuring that your landlord guarantees the maintenance and repair of these systems for a specified time period can save you unexpected costs and minimize business interruptions.

How to approach it: During lease negotiations, request that the landlord provide a warranty or guarantee on key building systems for a defined period, often 1-2 years, after you move in. This should include HVAC, electrical, plumbing, and other critical infrastructure. If repairs or replacements are needed within this period, the landlord would be responsible for covering those costs. Be clear about what specific systems are covered and ensure this clause is reflected in the final lease.

2. Have the Landlord Guarantee Indoor Air Quality and Agree to Regular Testing

Why it matters: Poor indoor air quality can lead to uncomfortable work environments, health issues for employees, and potential legal liabilities. By having the landlord guarantee indoor air quality and commit to regular testing, you can ensure that your space remains safe and compliant with health standards.

How to approach it: Negotiate for a clause that obligates the landlord to maintain healthy indoor air quality through regular testing and ventilation system maintenance. This might include ensuring air filters are regularly changed, air ducts are cleaned, and overall air quality is regularly evaluated. This proactive measure not only protects the well-being of your staff but also helps mitigate any future air quality disputes.

3. No Percentage Rent

Why it matters: Percentage rent agreements, which require tenants to pay a portion of their gross sales to the landlord in addition to base rent, can be financially burdensome, especially in fluctuating markets. Removing this clause from your lease helps to create a predictable rent structure, allowing you to better manage your cash flow.

How to approach it: During lease discussions, insist on removing any percentage rent requirement. Ensure that your rent is fixed and predictable, without being tied to your sales performance. This gives you more control over your expenses, especially in uncertain or seasonal markets where revenue may fluctuate. A fixed rent helps you plan your budget more effectively without worrying about unexpected spikes in rent payments.

4. No Limitation of Trade Area

Why it matters: A limitation of trade area clause restricts your ability to expand or operate in certain geographic areas, often intended to limit competition with other tenants. However, this can stifle your business's growth potential and flexibility. Negotiating for no limitation on your trade area ensures you can pursue new opportunities as they arise.

How to approach it: When negotiating your lease, make sure to eliminate any limitation of trade area clause that could prevent your business from expanding or opening additional locations. This provides you with the freedom to grow your business in other parts of the city or region without being contractually restricted. Keeping this flexibility open is key to scaling your operations in a way that benefits your long-term strategy.

Why These Tips Are Critical

Incorporating these four provisions into your lease negotiations will not only help manage costs but also reduce risks, ensuring the smooth operation of your business. Having the landlord guarantee vital systems, ensuring indoor air quality, removing percentage rent, and eliminating trade area limitations gives you greater control over your expenses and operational flexibility.

At Newcor, we specialize in helping businesses navigate the complexities of commercial real estate leases. With a deep understanding of how to negotiate the best terms, we ensure our clients are protected and set up for success. Contact us today to learn how we can assist with your leasing needs and more!