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Creative Clauses to Consider When Negotiating Your Commercial Lease

Published: 08-28-24 Category: Leasing/Renting

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Even if you've already leased commercial space for a business, you may assume that all commercial leases are similar.

However, if you do some homework before meeting a future landlord, you may be able to negotiate a lease that includes additional, even unique, clauses.

In particular, you may be able to add items to your lease agreement that can save you money both now and in the future while helping guarantee your business' success.

Here, we'll explore five valuable clauses that can benefit your business. Learning about them ahead of time will provide you with an edge in your lease negotiations.

#1 – Co-Tenancy Clauses: Ensure a Thriving Business Environment

A co-tenancy clause can be useful if you're leasing a space in a multi-tenant property. This can be a retail space within a shopping center, strip mall, office building, or low-rise complex.

This type of clause can help protect your business from future changes in its commercial environment, especially those that could affect its potential to attract new customers or clients.

A co-tenancy clause enables you to receive a rent reduction or to terminate your lease earlier than its term if one or more key tenants near you move out.

This clause also protects you if vacancy rates rise nearby, as this can make the entire area—and your business—appear abandoned and less attractive to passersby.

If you have a retail business that relies on foot traffic or an office that thrives within a vibrant business area, you will want to investigate the possibility of a co-tenancy clause.

For example, you could request a co-tenancy clause if you're opening a retail store within a shopping mall. The clause could state that if the large department store (anchor store) closes or if mall occupancy falls below 70%, you'll receive a 25% rent reduction until vacancy rates improve.

The next clause can help you expand your business in a particularly advantageous way…one that helps guarantee continued success.

#2 – Right of First Refusal: Securing Future Growth Opportunities Nearby

As your bottom line expands, your space requirements may grow as well. Perhaps you'll want to expand your inventory or services, hire more staff, or both.

In this case, a right of first refusal clause can help you lease suitable, additional space if and when you need it.

This clause can put you “first in line” if an adjacent commercial space, or a suitable one within the same property, becomes vacant.

You'll be able to consider leasing the space before the landlord lists the space as vacant or offers it to another neighboring business.

By avoiding a major relocation, you may also be able to save money and prevent competition from moving in nearby.

The next clause can help you avoid disputes and unexpected repair bills…nothing that any business owner wants.

#3 – Maintenance and Repair Responsibilities: Clarifying the Fine Print

One often overlooked section of a commercial lease is the clause defining who will be responsible for maintenance and repairs. Being aware of this possible cost and defining who will be “out of pocket” if this happens will help prevent unexpected costs and cash flow problems.

While some commercial leases can be vague about the care and maintenance of HVAC systems, shared areas, and a building's landscaping, it's up to the tenant to negotiate and define who is responsible for maintenance and repair tasks.

For example, you could request that your landlord or building owner be responsible for all HVAC maintenance and repairs while you handle interior decor for your space.

For other repairs, you could specify that repairs estimated to cost over $500 require your approval before being carried out.

Let's move on to another potential clause that can help a new business manage initial costs.

#4 – Free Rent Periods: Balance Immediate Savings With Long-Term Commitment

Requesting an initial period of rent-free tenancy can provide you with valuable breathing room, especially if you're opening a new business. It can also be used as a bargaining chip in certain circumstances.

For example, if your potential landlord asks you to commit to a longer lease term, you can counter by agreeing to this in exchange for a rent schedule that provides an initial rent-free period of three to 12 months.

You may also request this if you're moving into a building with a higher vacancy rate, as the landlord may be under pressure to bring in new tenants.

This could increase your cash flow during a time when unseen expenses tend to appear. In addition, a free rent period could enable you to pay cash for necessary renovations, built-ins, and/or equipment.

The last clause to consider could attract more foot traffic and is especially valuable if you're opening a retail business.

#5 – Signage and Visibility Considerations: Boosting Your Brand Presence

Visibility is crucial for many businesses, especially those in retail or service industries. Negotiating favorable signage terms can significantly impact brand awareness and foot traffic.

Include specific clauses about your preferred size, placement, and type of signage that will be provided or allowed for your business.

For example, if you're opening a juice bar, negotiate for prominent, lighted signage and permission to place a sandwich board on the sidewalk during opening hours.

This clause could also request protection from future landscaping that could obstruct the view of your signage from the street. For example, a landlord may think that planting trees could be an attractive improvement, but not if it hides your business from traffic.

Remember, a commercial lease is more than just a contract—it's a partnership between you and your landlord.

By approaching negotiations creatively and considering these innovative clauses, you can create a lease agreement that meets your current needs and supports your business's future growth and success.