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Top 5 Commercial Lease Negotiation Mistakes

Posted by Bernard Dietz | Nov 07, 2007 | 0 Comments

I have previously provided my Top 5 Secrets Landlords Don't Want You to Know list and thought I would provide another Top 5 list of the biggest mistake I see potential tenants make when they're trying to find space for their business.  If you can avoid some or all of these mistakes, you'll be way ahead.

The Top 5 Mistakes I see potential tenants make are:

  1. Not forming a LLC or corporation first.  You should go into negotiations with your separate entity already formed and ready to be named as the lessee.  If you can avoid a personal guarantee, you'll sleep easier at night.
  2. Not knowing what to ask for from the landlord.  Do you want to abate the rent until you open for business?  Do you need financial help with the construction costs?  You need to think through what you will need before you sign the lease, after which it is too late.
  3. Not understanding the terms.  What is a triple net lease?  What services will the landlord provide and which services are you responsible to provide?  If you haven't negotiated a lot of leases, the terms can be confusing.  Make sure you understand all of them before signing anything.
  4. Not being willing to walk away.  There is a lot of commercial space out there and you should be willing to move on to the next opportunity if you can't agree on terms that make sense to your business.  Often, an entrepreneur will make changes to his or her business model to fit the lease – that's backwards.  If you believe there is only one perfect location for your new business, then I would seriously consider a new business. 
  5. Not understanding the costs of build out and start up before signing the lease.  Getting construction sticker-shock after you have signed the lease is a terrible, terrible thing.  Make sure you have a firm handle on the projected costs of getting your proposed location open BEFORE you sign a lease.  Once you're in, you're in and the landlord is not going to be sympathetic when you can't make the rent payment because of your oversized start-up costs.

Keep in mind that in most commercial lease situations, the landlord and its agent will have much more experience than you.  They do this type of work everyday while most entrepreneurs will only negotiate a handful of leases in their working life.  This makes it crucially important to have experienced help in the form of a real estate agent and/or lawyer on your side to make sure you get the best deal possible.

About the Author

Bernard Dietz

Bernie Dietz is a Virginia lawyer and Virginia business attorney with more than 15 years of experience as both an attorney and a business executive, which gives him a unique view into the special needs of small to medium sized businesses. He has worked in business development, sales, and marketin...

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