Small Business Today Magazine DEC 2014 NOUN INVESTMENTS | Page 28
EDITORIALFEATURE
Dealing with Landlords…
The Good, The Bad, & The Ugly - Part 2
By Jeffrey D. Jones, ASA, CBA, CBI
I
n the August 2014 issue of SBT Magazine, Part 1 of “Dealing
with Landlords” listed the major considerations that are often
found in property leases. This article, Part 2, will address in
more detail some of those provisions that can be negotiated
for your benefit. Lets face it; leases are all slanted to the benefit
of the landlord. However, many of the lease provisions can be
negotiated to be less onerous for the tenant. Typically, you will
be dealing with a leasing agent who works for the landlord or a
landlord’s management company when negotiating a new lease.
Sometimes, these people have the authority to make changes to
their standard lease and sometimes they will need to get permission from the landlord to make changes.
The lease provisions can vary greatly depending upon the type
of property you are leasing such as a free-standing building, space in
an office building, a business park, a warehouse, a shopping center,
or a shopping mall. There are many common elements to property leases but there can be some unique elements depending upon
the type of property and the use of the property. Some of these
elements can be negotiated and some can not.
The following information will summarize some of the important lease provisions that can often be negotiated.
The lease provisions can vary
greatly depending upon the type
of property you are leasing such as a
free-standing building, space in an office
building, a business park, a warehouse, a
shopping center, or a shopping mall.
Rental Rates
The rental rate will often vary depending on the amount of space
you want to lease. Major tenants in a multitenant property will often
get the most favorable lease rates. Smaller tenants typically pay higher rates to offset the lower rates of the major tenants. Landlords will
often allow free rent for a new tenant for one to three months to
give the tenant an opportunity to get their business started. Sometimes, landlords will want to put this so-called free rent on the back
end of the lease wherein the tenant has to pay this rent at the end
of the lease or prorate lease payments to include the cost of the free
period. You want to avoid these provision when possible. If possible,
check with other tenants in the property or nearby properties to
see what they are paying and use that information to negotiate the
best lease possible.
Term of the Lease
Negotiating the best lease possible can make the difference
Most landlords prefer to enter into leases with a 3 to 5 year term. between your business thriving or dying. I often recommend to
Owners of distressed properties will sometimes consider month business owners that they hire a real estate broker who specializto month leases or a one year lease; however, the best rental rates es in representing tenants for space. This specialist will be familiar
can be negotiated with lease terms of 3 to 5 years. It is not un- with market rents and the terms and conditions that can be necommon that there will be lease rate increases in each year of the gotiated with the landlord. Typically, the landlord pays the brolease. It may be possible to negotiate for a fixed rate depending ker fee, even when the broker is actually representing the tenant.
upon the landlord’s need for a tenant. Landlords are often re- Furthermore, I recommend that you have a real estate attorney
luctant to give lease options to renew the lease for an additional review a proposed lease before you sign it to ensure there are
period of time. When they are willing to give a lease option, it will no provisions that would jeopardize you and your business during
most always have a provision that the original terms and condi- the term of the lease. Spending some money upfront to ensure
tions will extend into the lease option period except that the rent that you have a good lease can often save you thousands of dolwill be at the then market rate. At best, landlords will sometimes lars and many headaches during the term of the lease.
agree to a fixed rental rate for the option period; however, it will
most always be at an increase over the original lease rate. The
In next month’s article, “Dealing With Landlords”, Part 3 will
reason for this is because the rental income of the property is address additional lease provisions to help you obtain the best
one of the basis for the value of the property. If a landlord were lease possible.
to give a 15 year lease, then the value of his property is the same
Jeff Jones is the President of Certified Appraisers, Inc. and Advanced Business Brokers,
today as it will be for 15 years. Rent increases enable the value of Inc. located at 10500 Northwest Freeway, Suite 200, Houston,TX 77092. He can
the property to increase.
be contacted by phone at 713-680-3290 or by email at [email protected].
26 SMALL BUSINESS TODAY MAGAZINE [ DECEMBER 2014 ]