Commercial Leases Renting a location can be tricky. Here's how to get the best deal.

If you've never been involved in renting commercial space,your first glimpse of a commercial lease may be overwhelming. Theyare lengthy, full of jargon and unfamiliar terms, and alwayswritten to the landlord's advantage. But they are negotiable.Whether you're working on the deal yourself or using an agent,the key to successful lease negotiations is knowing what you want,understanding what the lease document says, and being reasonable inyour demands.

Especially for retail space, be sure your lease includes abail-out clause, which lets you out of the lease if yoursales don't reach an agreed-on amount, and a co-tenancyclause so you can break the lease if an anchor store closes ormoves. If you're going to have to do a substantial amount ofwork to get the space ready for occupancy, consider negotiating aconstruction allowance-generally $5 to $25 per squarefoot-to help offset the costs.

Be sure you clearly understand the difference betweenrentable and what is usable space. Rentable space iswhat you pay for; usable is what you can actually use to run yourbusiness and typically doesn't include hallways, restrooms,lobbies, elevator shafts, stairwells and so forth. You may beexpected to pay a pro-rated portion of common area maintenancecosts.

This is not unusual, but be sure the fees are reasonable andthat the landlord isn't making a profit on these charges. Also,check for clauses that allow the landlord the right to remodel atthe tenants' expense without prior approval and insist onlanguage that limits your financial liability.

Leasehold Improvements
Leasehold improvements are the nonremovable installations-eitheroriginal or the results of remodeling-that you make to the facilityto accommodate your business needs. Such improvements are typicallymore substantial when renting new space, which may consist of onlyconcrete walls and flooring. Often existing space will include atleast some fixtures you can use. Get estimates on the improvementsyou'll need to make before signing the lease, so you'llknow what your total move-in costs will be and so you can make afair construction allowance request.

Negotiating The Lease
The first lease the landlord presents is usually just the startingpoint. You may be surprised at what you can get in the way ofconcessions and extras simply by asking. Of course, you need to bereasonable and keep your demands in line with acceptable businesspractices and current market conditions. A good commercial realestate agent can be invaluable in this area. Avoid issuingultimatums; they almost always close doors-and if you fail tofollow through, your next "ultimatum" won't meanmuch. Consider beginning the process with something that'sclose to your "best and final offer." That way, yournegotiations won't be lengthy and protracted, and you caneither reach a mutually acceptable deal or move on to a differentproperty. The longer negotiations take, the more potential there isfor things to go wrong.

Essentially, everything in the lease is subject to negotiation,including financial terms, the starting rent, rent increases,tenant leasehold improvements, options for lease renewal, thetenant's rights and responsibilities, and other general termsand conditions. You or your agent can negotiate the lease, but thenit should be drawn up by an attorney. Typically, the landlord orhis attorney will draft the lease, and an attorney you hire whospecializes in real estate should review it for you before yousign.

Excerpted from Start Your Own Business: The Only Start-UpBook You'll Ever Need, by Rieva Lesonsky and the Staff ofBIZ Experiences Magazine, © 1998 BIZ Experiences Press