Negotiating a commercial lease can be a challenge for restaurant, lounge and bar business owners. These tenants may go through the leasing process once or twice in their entire lifetime, yet they have to go up against seasoned professionals who negotiate leases every day for a living.
What’s more, the agent or broker is largely commission-driven: He or she will earn his or her paycheck for each tenant signed.
Whether you are negotiating a lease renewal or leasing a new location for the first time for your bar, here are a few tips for tenants.
Negotiate to win. Tenants all too frequently enter into lease negotiations unprepared and don’t even try winning the negotiations. If you are not even negotiating to win, you won’t.
With sizeable commissions at stake, you can be sure that the landlord’s agent, on the other hand, is preparing to negotiate fiercely to win. Tenants should remember that it is okay to negotiate commercial leases assertively.
Be prepared to walk away. Try to set aside your emotions and make objective decisions. Whoever most needs to make a lease deal will give up the most concessions. Consider all factors: A good lounge/pub/bar in a poor location will become a poor business.
Ask the right questions. Gathering information about what other tenants are paying for rent and what incentives they received will position you to get a better deal. Remember that your landlord and his agent know what every other tenant in the property is paying in rent, so you must do your homework too.
Beware the brokers. Real estate agents and brokers typically work for the landlord who is paying their commission. It’s not normally the agent’s role to get the tenant the best deal; it is their job to get the landlord the highest rent, the biggest deposit, and so on. The higher the rent you pay, the more commission the agent typically earns.
If you are researching multiple properties, try to deal directly with the listing agent for each property, rather than letting one agent show you around or show you another agent’s listing. Your tenancy is more desirable to the listing agent if he can avoid commission splitting with other agents.
Never accept the first offer. Even if the first offer seems reasonable, or you have no idea of what to negotiate for, never accept the leasing agent’s first offer. In the real-estate industry, most things are negotiable, and the landlord fully expects you to counteroffer—even repeatedly.
Ask for more than you want. If you want three months free rent, then ask (negotiate) for five months. No one ever gets more than they ask for. Be prepared for the landlord to counteroffer and negotiate with you as well. Don’t be afraid of hearing “no” from the landlord—counteroffers are all part of the game.
Negotiate the deposit. Large deposits are not legally required in a real-estate lease agreement. Deposits are negotiable, and, more so than anything else, often serve to offset the real estate commissions the landlord will be paying out to the agent/broker. We are frequently successful in negotiating for the tenant’s deposit to be refunded when signing a lease renewal and avoiding a deposit on new leases.
Measure your space. Tenants who don’t measure frequently pay for phantom space. Most tenants are paying their rent per square foot, but often they are not receiving as much space as the lease agreement says.
Negotiate, negotiate, negotiate. The leasing process is just that: a process, not an event. The more time you, the tenant, have to put the deal together and make counteroffers, the better the chance you have of getting what you really want.
Tenants too often mistakenly try to hammer out the deal in a two- or three-hour marathon session. It is more productive to negotiate in stages over time.
Educate yourself and get help. With hundreds of thousands of dollars in rent at stake, personal guarantees and other risks, you can’t afford to gamble. In leasing, lounge/pub/bar tenants don’t get what they deserve, they get what they negotiate.
Dale Willerton and Jeff Grandfield are with The Lease Coach; they are commercial lease consultants who work exclusively for tenants, as well as professional speakers and co-authors of Negotiating Commercial Leases & Renewals For Dummies. For more information, visit www.TheLeaseCoach.com.