How to Negotiate Commercial Leases That Favor Tenants
If a landlord or leasing agent simply tells you the terms, ask for something showing the terms in writing before you submit a counteroffer. If they are reluctant to offer a letter, ask for an email or a copy of the listing for the space (which will contain at least the basic leasing information).
Why is it so important to have initial terms in writing? A leasing agent acts on behalf of the interests of the landlord. If an agent either misunderstood or attempted in any way to alter the landlord’s directions, having terms in writing can show you a landlord that your counter offer was made in good faith based on information from the leasing agent.
It is also possible that you could misunderstand lease terms if they are not in writing. This could lead you to counter too high or too low based on information you misunderstood.
Another reason to have the terms in writing is that it allows you time to research more about the lease, to ask an attorney about the terms, or even to compare terms to any other leases you are considering.
Asking for terms in writing is not in any way a legal commitment on your part to move forward. You always have the option of countering the terms or simply turning them down outright.
A Counter Offer
When you buy a house, you negotiate the price. A seller lists the house for the amount of money they would like to get from the sale, but almost always expects to get less. A buyer interested in purchasing a home will submit something in writing to the seller with a counter offer. In this case, a counteroffer is an offer to buy the home at a lower price than what the seller is asking. Simply stated, a counter offer is bargaining.
This is also true for commercial leasing. While some leases may truly be non-negotiable, for the most part, it works just like buying a home: a landlord or listing agent asks for one rent price (or set of terms) but allows some room for negotiation. In other words, in commercial real estate, it is almost always expected that the renter (or, lessee) will submit a counteroffer, so the landlord inflates the prices and/or terms.
The Initial Negotiation Process
Once you have expressed interest in leasing a space, some landlords will simply offer you a form that states the lease’s asking terms. These forms may have a response section or an attachment to complete where you can counter offer. Others may just offer a copy of the listing papers (an ad or flyer) with “asking terms.”
In most cases, however, it is in your best interest to submit a letter or other written form of communication with a counter offer. Why? Because in a letter you can include selling points as to why you would make an ideal tenant, tell the landlord about your business, and make the deal more personal.
For a hot property with multiple interested parties, your letter can serve as a sales ploy to get the landlord to pick you and agree with your terms. Negotiation may go back and forth, so be patient. A listing agent usually has some freedom to make decisions, but most likely will need to confer with the landlord. It can take time.
If you have not heard back on an offer in one to two business days, it is fine to follow up. But try not to appear desperate or overly anxious as this could affect the outcome of your negotiations. Remember, most listing agents want to move a property just as fast as s/he can so they usually do not need much “nagging.”
Preparing An Offer or Counter Offer Letter
Your counter offer should be presented from your business, not from you personally, even if you own a sole proprietorship. Your offer letter is a sales pitch. You are asking for different terms that are more in your favor, and you want the landlord to see you and your business as a good choice.
Your offer letter should always include the following information:
The Person Liable for the Lease
Include the name of your business which includes the name you are legally established under, as well as any other names you are doing business under. Remember, if you are operating a sole proprietorship, from a legal standpoint you and your business are the same and even if you list your business on the lease, you might also be held personally liable for the entire lease.
Your Business Structure
If you are incorporated, tell where you are incorporated. If you are a tax-exempt organization state this in your letter. It is rare that landlords offer you freebies or perks to nonprofits just to get a tax write-off, but they may be more inclined to negotiate or lease to a noble cause than to a biker club. Additionally, understanding your own personal liability for signing a lease is important and will vary depending upon your business structure.
How Long You Have Been in Business
If your business is less than two years old, you may wish to also include a statement about your success, or future growth projections or a business plan. A landlord is not likely to rent to your business, without someone personally cosigning or guaranteeing the lease, if you cannot show that your business is doing well.
The Nature of Your Business
What do you do? Be brief and to the point. A landlord needs to know what you do in case there are any special considerations. For example, if you run a business that uses hazardous materials, has walk-in patients to a health facility, or stores items of excessive value, the landlord needs to know in case there are restrictions on the use of the property. What tenants do, can affect a landlord’s property values and insurance rates; so be honest.
Be sure to include a phone number where you can be reached, and if possible, and email address. If you can only be reached on certain days or during set hours, include this as well. If you do not respond to a landlord or listing agent in a timely manner, they may think you are not interested.
Your Proposed Terms (or, Counter Offer)
Be as complete and clear as possible.
Listing Your Leasing Terms in an Offer or Counter Offer
The best way to negotiate a deal is to have a clear understanding of what it is you are offering or willing to accept. If it is not in writing, it will be very difficult to prove later on that something was excluded from a lease that you thought was supposed to be included.
Putting things in writing may take a little longer, but it does offer you some legal protection if things go amuck later on down the line. If you are time-pressed and cannot mail a letter - deliver one. If that is not possible, a well-written email may suffice.
If you are not certain about a particular lease requirement as for clarification -- and try to get that clarification in writing.
The Length of the Lease
If you want to change the length of the lease terms, be clear. For example, is the lease you want is for two years with three, one-year renewal options (totaling five years); or a straight five-year lease with no renewal options? It makes a very big difference in how long you will be locked into a lease and how a landlord might feel about other terms you are asking for in a counter offer.
Most landlords prefer two-year or longer leases, but never hesitate to ask for a one-year lease. One-year leases may cost a little more, or have fewer lease renewal options, but you are locked in for less time. Unless you are a multi-million dollar company, it rarely makes good business sense to sign a lease that commits you to the space for more than two years.
Keep in mind if your business outgrows the space, you do not want to be stuck with a long lease. Or worse, if your business struggles and you need to downgrade to a smaller space, you may have a hard time breaking your lease.
Condition of the Property
If you are asking for the space “as is” or if you need the landlord to make repairs or improvements first. If you are planning to renovate the property, briefly describe the proposed renovations. You want this included in a lease because often a landlord will offer some sort of incentive or “allowance” if you renovate certain types of properties. If you are unsure what allowances you might be offered for any renovations, keep things open. Offer to submit more detailed information about renovations for the landlord’s review to offer you some sort of considerations for improvements.
Tell the landlord when you want to take physical possession (move in, gain access, or take responsibility for the property). In some cases, when the date you take physical possession may be different than the date, you will begin paying rent.
For example, you could ask the landlord for an occupancy date and rent start date of January 1, 20xx, but ask that the first month be rent-free. In this case, the lease would begin on January 1, 20xx and the landlord could write off the free month’s rent. The tenant would occupy the space for 12 months, and the lease would run for 12 months.
Another way of getting the same thing (a free month of rent) is to ask for an occupancy date of January 1, 20xx, with a rent state date of February 1, 20xx. It means the lease would begin one month from the date you move in, or on February 1, 20xx.
This type of negotiation only works in a space that is already unoccupied, and the landlord is eager to have someone move in because it favors the tenant. In essence, you not only get one free month rent, you get to 13 months of occupancy out of a 12-month lease.
How to Write an Offer or Counter Offer Letter
The following is sample letter that can (and should) be revised to use as either an initial offer or counteroffer to lease a commercial space for your business. It is not intended to serve as a substitute for legal advice, but simply to show one way you can express interest in leasing a particular space.
Information in bold should be substituted with your own information and leasing terms.
(Insert Today’s Date)
(INSERT Name of Landlord or Listing Agent)
Ms. Happy Landlord
City, State, Zip Code
Dear Ms. Landlord;
This letter is to express interest on behalf of (INSERT name of your business), in leasing the property located at: (INSERT complete address including street address, unit or suite number, city, state, and zip code).
(INSERT name of your business) is a (INSERT type of business you own – LLP, partnership, sole proprietorship, etc.) that (INSERT brief statement about what your business does).
(INSERT name of business) has been in operation since (INSERT start date or number of years in business). Due to exciting growth, we need larger (or, additional, more suitable, etc.) facilities.
(Note: even if you work from home do not offer this in your proposal letter. Try to avoid offering in this initial contact that you have a home-based business – it may make you sound small and unstable to a landlord.)
After carefully evaluating fair-market value I (we) propose the following terms for your consideration:
LIST ALL TERMS HERE including length of lease, renewal options, rent, added fees, type of lease, annual increases, etc. Anything you want to include or address in the lease detail in this paragraph. Be sure to include any renovations or repairs you want or need the landlord to make to the space, or that you would do yourself. Ask for free rent, furniture, extra parking – anything you might need to make the space work best for your business.
I am excited at the prospect of leasing the above-mentioned space and feel that (INSERT Name of Business) would be an asset to you. If you have any questions about this proposal of leasing terms, or out business, please contact me at (INSERT phone number and best time call), or by email at: (INSERT your email address).
Thank you for taking the time to consider this offer. I look forward to a prompt and favorable reply.
(leave 2-3 blank lines for signing your name in ink)
(INSERT Your Name – initial caps)
(INSERT Your Title – initial caps)
Note: If you include any attachments, or copy anyone else, the preferred way to show that in a business letter is after your signature, like this, and in this order:
(leave 2-3 blank lines for signing your name in ink)
(INSERT Your Name – initial caps)
(INSERT Your Title – initial caps)
Enclosures: (List more than one on separate lines, indented)
cc: Jennifer Barnes, Listing Agent
How to Format The Second Page of a Business Letter
If your letter is longer than one page, the standard business letter format to start the second page is like this:
Then skip two to three blank lines and pick up where the letter begins for page two.
How to Deliver An Offer Letter
You can mail your offer letter, hand-deliver it, or send an email with an attachment that contains the offer letter. If you are still struggling with what terms to include, here are more articles with great tips and advice on negotiating the best terms possible!
Tips on Writing Your Offer Letter
- Remember that this is a business letter. Keep it clean, simple, and to the point but do not be afraid to use meaningful “selling points” to help win over a landlord.
- Avoid using humor, slang, or offering personal feelings about politics, religion, or any other subject that is not related to the purpose of the letter (to make an offer).
- Do not use scented or “frilly” stationery. Your paper should be white, letter-sized and without borders, or your usual company letterhead.
- Mail the letter in a plain white business-sized envelope. Do not ever fold to fit the letter into a smaller envelope. If your letter contains more than seven pages including attachments, use a flat, 8-1/2 x 11” envelope instead. Make sure to include a return address in the top, left-hand corner of the envelope, and make sure you have put enough postage on the envelope!