Negotiating a commercial lease requires patience and attention to detail which is why your business should use a tenant representative to make sure that terms and conditions, both major and minor, are handled correctly.
During the negotiation process, the terms that will make the biggest impact in the value of the lease are negotiated first. These include the monthly rent per square foot, the location, the size of the space, the length of term, and the tenant improvements to be constructed by the landlord. These items are often settled through the letter of intent (LOI) or request for proposal (RFP) process and after these are set, you can then begin to negotiate secondary components of the lease.
There are two methods for this process, the first is to start from the beginning of the lease document and negotiate your way to the end. The second method is to address the most important issues first then work your way down to the least important.
For example if you believe there is a high probability you will sublet the space you may want to address that portion of the lease first. More often than not the lease will be drafted by the landlord and the sublet portion of the lease will favor the landlord. Usually the application fee to sublet space is $500 to $1,000 dollars which may seem reasonable if you are a large tenant and with a large space but if your monthly rent is approximately $3,000, a $1,000 application fee may be excessive and should be negotiated down.
Additionally your landlord usually has a clause that states if the tenant sublets the premises at a rate above the rate that they are paying, the landlord will be entitled to 100% of the profit and not the tenant. This is also an issue that should be addressed.
The only downside to negotiating critical items first is that if the landlord concedes on what they believe to be your most important concerns he may be less inclined to negotiate other issues within your lease. This is why a simple approach of negotiating from beginning to end may work to your business’s advantage.
No matter what approach you use to negotiate your lease in San Diego or in any other market it is always best to team up with a tenant representative because their input will be crucial to getting a lease that is fair to both parties.
