Factors to Negotiate in Commercial Real Estate Leasing

When it comes to leasing a commercial, industrial, or retail property there are many things to work with when it comes to a lease negotiation.  That inspection and negotiation process is the job of the broker or agent.

All essential factors of the intended lease should be set in place by the real estate broker as part of creating a ‘heads of agreement’ in preparation for the final lease creation.  From that point onwards the client’s solicitor can bring the final lease document into ‘legal form’ and arrange the signatures on the paperwork.

The real estate broker or agent can and should stay with the negotiation until all factors of occupancy are completed; many solicitors are not known for ‘timely response’ when it comes to property documentation so you may need to ‘push’ a lease transaction along on behalf of your client.  If you have negotiated a lease transaction, you are the person to give it momentum through documentation and towards finality.

So what are the common factors of negotiation that you can work with in investment property leasing today?  Try some of these to get started:

  1. Rental strategies will vary depending on property type and location.  Understand the differences between gross and net rent as they should apply in any property lease.  Choose the best rental type that will benefit the landlord (your client) over the long term.  Outgoings will form part of the rental structure so understand the ‘averages’ when it comes to outgoings recovery locally, and what rental type will do the best financial job for the landlord with the tenancy being leased.
  2. Incentives will change from time to time and will be impacted by the supply and demand for local property.  There are many different types of incentive so it is the broker’s job to make clear recommendations to the client about the right incentive to close the lease negotiation. A well selected incentive should provide a quality tenant for the investment property and help it to return appropriate rentals to the landlord.  Short lease terms do not attract any incentive.  As market conditions improve and demand exceeds supply, it is likely that incentives will disappear from the market as part of the cycle of tenant occupancy.
  3. Lease term negotiation should suit the landlord given their investment plans and rental returns.  It is important to understand exactly what the client wants to do with the property, and then negotiate the leases around that fact.
  4. Lease options are sometimes useful if the landlord is to hold the property for a long time.  If on the other hand the landlord is intending to develop the property, a lease option can be a ‘hindrance’.  Negotiate lease options with care and with due regard to the future of the property.
  5. Make good requirements should be well considered in the original lease negotiation so the landlord gets back the tenancy at lease expiry in the condition that suits the next stage of property or tenancy growth.
  6. Rent reviews will have an impact on rental growth.  There are a few different types of rental reviews that can be used; remember that you are working for your client the landlord, and on that basis the right rent review clauses and conditions should be set that help the property improve financially over time.

So there are some important decisions to be made here when it comes to leasing.  As the local leasing expert, make the right recommendations to your client that help the investment property perform over time.  Help the client see how you can improve property performance with a few simple directed decisions and choices at the early stages of lease negotiation with the tenant.

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