Lease Negotiations: What Sophisticated Businesses Understand About Leverage When Looking for a New Location

Perfect Preparation Prevents Poor Positioning.

Here's something most business owners don't realize until it's too late: by the time you're sitting across the table from your landlord to discuss lease terms, the negotiation is mostly over. And if you haven't positioned yourself correctly, you're at a disadvantage. 

Landlords are usually playing offense. Most tenants are playing defense. Commercial landlords and their listing brokers are professional negotiators because they do this every day. They know the market, they know their position, and they are always trying to dig and get as much information on a prospective tenant. This will help them with leverage and negotiations later in the process. 

Small businesses often call on a listing and show up to view the space with very little knowledge of the leasing process and the ensuing negotiations to come. Listing brokers and landlords aren't all bad people, they normally want their tenants to succeed. However, they want to close the deal on the best possible terms for the landlord, with the lease amount of risk and most amount of profit. Being friendly and being on your side are two very different things, and it's easy to confuse the two when everyone is shaking hands and talking about buildout finishes. 

The tenants who walk away with the best deals: meaningful rent concessions, generous buildout allowances, favorable escalation caps, flexible termination rights.... aren't just lucky. They are prepared, and they have positioned their business as a desirable tenant worth competing for, long before the first offer is ever made. 

Smart businesses know their time is better spent running their company. There are simply too many details and variables to navigate when opening a new location and negotiating a lease, and a bad real estate decision doesn't just cost money. It costs time, energy and could potentially cost employees their jobs if the business is affected. So they call on a commercial real estate advisor who works exclusively on their behalf; protecting their interests throughout the entire process, keeping everything organized, identifying business opportunities and providing critical feedback on the details that could make or break their business. 

My responsibility as my client's commercial real estate advisor is set up their business in the best possible position for success.

How we prepare your businesses for success...

Reevaluate your business position and define your future goals. An advisor like myself working exclusively on your behalf can help you understand your current position, opportunities, options, your market, and your leverage, long before any landlord knows you're looking. Where is your company headed in the next three to five years? Are you growing, rightsizing, or restructuring? The right space decision starts with an in depth analysis of your business, not just a quick internet search for available listings. 

Audit your current space. Does it still fit how your team actually works today? Hybrid schedules, headcount changes, and operational shifts may mean you're paying for space that's no longer serving you. So many details to examine! 

Tour competing spaces seriously. The bigger the business, the earlier you start. Nothing changes a new landlord's posture faster than learning that you are a legitimate, credible and organized prospect tenant. My responsibility is presenting my clients as best as possible to prospective landlords. Also, how about seeing a space before it's even listed? Landlords would love the headache of having a plan for a new tenant before the old one moves out. 

Waiting to late hurts your leverage. You are at a disadvantage if a Landlords knows you are desperately trying to move within the next few months, because your lease is up. Starting early allows you the opportunity to walk from a deal if you do not get what you want. 

Negotiate from patience, not panic. Panic and anxiety is the most expensive emotion in commercial real estate. It leads to rushed decisions, unread clauses, and deals you'll regret for the next 5 to 10 years.

Build your team early on. A tenant rep broker, a real estate attorney, architect, contractor, CPA and other vendors. Having them on standby helps to not have to shop around at the last minute. 

Final thought

Thinking about relocating or expanding to new locations? 

You must strongly evaluate where your business was, where it is and where it's going. Start the process early before the clock starts working against you. The businesses that consistently negotiate the strongest leases aren't necessarily better negotiators - they're simply better prepared.

 Thank you for reading!