When a business is deciding on a location and where it would like to set up shop in New York, the costs of a commercial lease will greatly impact where the business will be located and how long it can stay there. And depending on the current state of the commercial real estate market, a business might be able to obtain significant concessions from the property owner if they use the market and other conditions of the building to their advantage.
Negotiating a lease is an important step to take when entering into a commercial real estate lease. Because lease disputes are possible, it is important to address some major or typical terms when negotiating a commercial lease.
To begin, it is critical that both parties establish what the rent is and what rent increases will look like. Additionally, other costs associated with the property need to be considered when calculating the rent. While some terms regarding rent can be negotiable, terms such as utilities, insurance, taxes and repairs might be defined as being assumed by the tenant or the landlord; therefore, they might not be negotiable.
In a gross lease, the landlord pays for the utilities, insurance, taxes and repair; however, rent is usually higher because these costs are included in the rent. In a net lease, the tenant pays the rent and pays for utilities, insurance, taxes and repairs. For a double net lease, the tenant pays the rent amount and pays the landlord for insurance and property taxes. Lastly, in a triple net lease, the tenant pays the rent amount in addition to also paying the landlord for the cost of utilities, insurance, taxes and repairs.
Negotiating the length of a lease is crucial because landlords typically make concessions to tenants that agree to long-term leases. Although, a long-term lease might not be suitable, so it is important to reach a desirable term that will allow the business to remain in the location for the agreed amount of time. The length of the lease requires the tenant to pay rent for that time regardless of the failure or success of the business.
Other important terms to consider when negotiating a commercial lease are any necessary improvements that need to be made to the space to make it functional and appealing. If improvements are needed, it must be determined who is responsible for paying for these expenses. Additionally, when entering into a commercial lease, it is important that the terms of the permitted use of the space are understood as well as the ability to sublet or assign the lease to another tenant.
Source: Findlaw.com, “Negotiating a Lease for Commercial Real Estate,” accessed March 14, 2016