How to Negotiate a Better Deal for Your Commercial Lease Agreement in Iowa
As every business owner knows, you cannot get a lease with favorable terms if you don’t negotiate. Also, you know that you have to negotiate the changes in some of the terms before you sign anything. The commercial lease agreement is a legally binding contract between the landlord and the tenant. It gives you, the tenant, the right to own the commercial property for a specific amount of time and at a certain amount payable as rent. Once signed, you have committed to meet your end of the agreement without fail.
To negotiate for favorable terms, you must understand all the elements of a commercial lease agreement in Iowa. Whether you are a master negotiator or a first-time leaseholder, this content will shine the light on what you should know before and during the negotiation process. Note that your points of negotiation are also the elements of your lease.
The term of the lease
The term of the lease is the time you wish to lease the property. Do you need a long-term or a short-term lease? If you are new in business, a short-term lease is preferable to a long-term lease. And even then, you should have researched the suitability of that commercial state extensively.
When searching for office space, check:
The zoning of the office space – is the property zoned for commercial operations and retails shops or is it designated an office space?
Accessibility – is there enough parking for you and your customers? You need parking for at least 3 customers. And you also need to factor in your employees.
Employee and customer pool – other than the accessibility, you should look at the traffic the property gets and the people who frequent the property. For instance, if you are setting up a restaurant, you have to consider your target clientele and whether or not people walk around the location a lot.
You also need to be keen about your maximum budget and if the size of the property is ideal for your business.
Once you’ve accounted for these elements, you can choose a preferable term for your Iowa commercial lease agreement.
And speaking of lease terms, you can opt for a fixed-term or a periodic lease term.
The fixed-term leases have predetermined end dates. In most cases, the landlord cannot increase the rent or change the terms of the lease, unless the change is provided for in the lease.
The periodic leases, on the other hand, refer to leases with unspecified end dates. However, either party can terminate tenancy after issuing a formal notice.
Permitted uses of the property
Before you negotiate better terms, be sure that the landlord allows running of the business in your line of operations. Other than the approval from the landlord, you also need to check the interior and exterior designs of the space. The space should improve the flow of business by streamlining your business activities.
Rent and Expenses
It’s safe to say that most of us will negotiate the rent charged more than anything else in the lease, right? Well, to get the best rate, even one that is below the market average, you must choose the relevant type of lease.
Besides the types of leases dependent on the term of the lease, leases also vary depending on the what you pay for.
Gross lease: in this type of lease, the amount put forth by the landlord represents the base rent (the amount you pay for the space only) and the cost of operating expenses and utilities.
Net lease: with this lease, you pay the base rent and operating expenses including the property taxes, insurance, and the common area maintenance (CAM). Note, however, that there are three main types of net leases: single, double and triple net. The triple net lease involves paying the base rent plus the pro rata expenses (insurance, taxes, and CAM). The double and single net leases involve payment of the base rent with two expenses (taxes and insurance) or one expense (property taxes). Generally, a net lease is cheaper because the operating expenses tend to reduce with time lowering the rent you pay.
Modified gross lease: you might also negotiate the terms of the lease such that you only pay a small part of the expenses.
Percentage Lease: in other cases, you’ll have to pay the base rent as well as a percentage of your gross income.
Besides the operating expenses and the utilities, the rent payable in the future could be affected by escalations.
Escalations refer to the legal provision that allows the landlords to increase rent charged to counter the effects of inflation. Escalation may be based on amounts so that the rent increases by a specific amount every year. Escalation could also be indexed or based on a percentage.
Negotiate how much the landlord pays for improvements to the commercial space. Why? Tenant improvements refer to the predetermined construction allowance by the landlord to a tenant quoted on a square foot basis. Though negotiable, you might not get the allowance if the demand for the space is high and the landlord has no problem filling the space.
If the commercial space you intend to lease is not ADA compliant (it should be compliant indoors and outside), you should negotiate the terms and make it clear that the landlord covers the costs required to make the space compliant. If the landlord declines to meet your terms, then your lease (op/ex) should be without the common area improvements.
To avoid any issues, make sure the space is ADA compliant before you sign the agreement.
Other elements to check include the assignment and sublease options.
Also, check the terms of the termination and relocations clauses, and protect your expansion and renewal rights.
Would you like a commercial lease in Des Moines, Davenport, Cedar Rapids, Iowa City, Ames, Dubuque or any other city in Iowa? Download your free copy of the Iowa commercial lease agreement form here today.