Business and Operations
Negotiating a better lease
By Jeff Grandfield and Dale Willerton
Planning and allowing ample time can save you aggravation and money.
By Jeff Grandfield and Dale Willerton
As we emphasize in our new book, Negotiating Commercial Leases & Renewals for Dummies, the leasingprocess is not a simple task. Considering the number of steps involved and potential hurdles you may face, property planning and allowing for ample time can save you aggravation and – more importantly – money.
One common mistake that commercial bakery tenants can make is agreeing to terms too quickly with the real estate agent. We routinely hear from frustrated tenants who signed too hastily and realize after the fact, that they may have made a mistake. While they do good work, agents work for the commercial landlord (rather than the tenant.) Real estate agents will often push a prospective tenant to lease a unit that may not be the best choice; it may be too large or too expensive.
The long-term success of the commercial tenant is of little importance to a realtor or real estate agent. Their motivation is often a promised commission from the landlord, and that commission will typically increase when the tenant leases more commercial space and leases for more years.
It’s not uncommon to get a call from an agent who claims that someone else is looking at the space that you looked at last week, so you had better hurry and sign an offer to lease. Don’t let tactics like that sway you. Go at your own speed and get it done right.
As a bakery tenant, you will also want to devote your time to doing what you enjoy and what is best for your business. Smart bakers will often realize that they cannot accomplish everything that needs to be done, so they will hire outside professionals to help them, such as a lawyer or an accountant. Considering the amount of work involved with your own commercial lease, it can be a worthwhile investment for bakers to hire a professional lease consultant to help ensure that they get a better – and fairer – lease deal with the landlord. For the best results, everything that needs to be done before signing a lease can take between 20 to 40 hours. Would you have that kind of time to spare?
Moving from time to timelines, scour all documents for deadlines and note these conspicuously. It may be possible to adjust these deadlines depending on the circumstances. You may find that some steps are beyond your control, such as getting financing in order or having a contractor inspect the commercial space. You would then need more time to get everything in order. While you could keep extending your condition periods by several days with your landlord, it is often better to simply ask for a longer condition period (perhaps 20 or 30 days) to ensure everything can be done.
While you may be just starting out as a new bakery owner, remember that timing plays a vital part when your lease renewal comes due. It is not unrealistic for a bakery tenant to begin their lease renewal process 12 to 15 months prior to their lease expiration date. More precisely, look at your renewal-option clause. If this says your cut-off date for exercising your lease-renewal is 6 months before your lease expires, you would need to start the renewal process 6 months before that, or a total of 12 months in advance.
If you have joined (or plan to join) a bakery franchise concept, remember that franchise tenants should make sure that their lease term matches their franchise term to avoid issues later with the lease running out too soon. This happens when the start date of the franchise agreement is prior to the start date of the lease agreement, which may be several months later, when the franchise business actually opens.
Pay attention to your own renewal option cut-off deadline and react accordingly. While you may have intended to stay leasing your current location, your landlord may have other plans: Your landlord may have found a replacement tenant to take over your space and may increase your rent dramatically to effectively nudge you to move out and vacate the space. This isn’t always the case, however, it is something for bakery tenants to think about before it happens.
Timing can also be a factor if you don’t have a renewal option and want to stay where you are currently leasing. If you don’t show any interest in moving, your landlord can take advantage of this situation by increasing your monthly rent. And, if you wait too long before approaching your landlord, you will have less time available to you to move, if necessary.
For a copy of our free CD, Leasing Do’s & Don’ts for Commercial Tenants, please email your request to JeffGrandfield@TheLeaseCoach.com.
Dale Willerton and Jeff Grandfield – The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013). Got a leasing question? Need help with your new lease or renewal? Call 1-800-738-9202, email DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com