Get "GROSS" - Lease Negotiation Tips
Having a hard time navigating the lease terminology?
Triple Net, CAM, Modified Gross, Industrial Gross, Full-Service, Single or Double Net, Percentage Lease.
What do they all mean? Unfortunately, they can mean different things to different landlords. Though somewhat standardized, it doesn’t matter what a lease is called, but rather the terms it contains.
Sorry, but you should actually READ it. Even then, understanding it can be difficult. Don’t think some of that isn’t on purpose.
When you are looking for a space, try to find two or three that would suit your needs. This is so you can play them off each other.
No doubt, however, that one of them will be your favorite.
But part of being a successful negotiator is not tipping your hand. In other words, don’t let a landlord or their representative know that their space is number one on your list.
Ask for a copy of the lease for review. Ask what type of lease it is – what they are calling it.
Don’t succumb to pressure tactics meant to rush you into a decision. For example, if you are told that someone else is seriously considering leasing the space, simply say: “That’s good – hope you get what you’re asking” and leave it at that. Chances are you will elicit at least a pause or stutter.
Take the lease home – read it. Use the internet or a professional to get answers to questions you have.
Most importantly, truly and conservatively examine how much you can or want to afford. That is your stopping point; be ready to walk away if it goes above that. Don’t let someone (landlord, real estate broker, management company) convince you that your business can afford more than you determine it can. How would they know?
Now – Time to get “GROSS”
Go back and simply say (starting 10% – 20% less than your top number): “It doesn’t matter to me how you back into this as far as your lease type and paperwork goes, but I’m willing to offer $X,XXX.00 per month gross for X months.” Make sure they understand that if you’re offering $2,500.00 for example per month – that’s it – the total monthly amount – not just the base rent.
What you are doing is capping whatever type lease they have. You do not want to be surprised by extra costs that can and will go up in many net lease types. The lessor will probably tell you right then that they can’t do that. Be prepared to say “OK” and walk away. Chances are they won't let you get too far. Or you can say: “What CAN you do to cap the costs?”
From there it’s a negotiation. You have set the bar on your side. If you know the market and have secondary options, you are far more apt to get the results you’re looking for.
If they are unwilling to negotiate something you can live with, then isn’t that best to know? Don’t bury yourself and your business before you even open – be smart and be patient.
NOTE: There are occasional deals that are good and do need to be acted on quickly, but they are not the norm. Know the location – know the market. Be prepared.
As always, if you have any questions, please visit the website or give me a call at (805) 320-4801