Negotiating the Commercial Lease Agreement
Tenants are all too often in a hurry to put pen to paper in order to commit to a landlord’s form of lease agreement in the hopes of securing a suitable location for their business venture. Tenants are furthermore hesitant to budget appropriately for both the requisite time and money associated with properly negotiating the commercial lease.Most tenants have a firm grasp on the negotiation process as it relates to the price per square foot. Tenants will almost always immediately preface their request to have one of our lawyers review their lease agreements with, “the price is already agreed upon and most of the other terms are not negotiable so just point out anything that I should not be signing.” This position can sometimes have the effect of handcuffing a solicitor’s hands as, absent an open-minded tenant willing to be persuaded and in fact educated as to the importance of negotiating the other terms of a commercial lease, there is little a lawyer can achieve for the tenant client.
First and foremost then, it is nothing more than an urban myth that the landlord’s form of lease cannot be negotiated. Our office regularly acts for both commercial landlords and tenants and negotiations are handled for and on behalf of both sides of the equation.
Furthermore, tenants need to appreciate the importance of negotiating more than simply the price per square foot, as most standard forms of landlord-favourable lease agreements secure further sums of money to the landlord which, unless negotiated, may cost the tenant its business. Tenants are often shocked when they learn that the commercial lease agreement is structured so as to make the tenant liable for a good portion of the building’s maintenance despite the fact that the tenant was simply opting to lease a portion of the premises. Terms securing to the landlord the right to collect, amongst other things, additional rent and operating costs, can make it impossible for a tenant to operate profitably and are invariably negotiable items and as important if not more important than the very base rent per square foot.
A landlord will seek to define terms such as “additional rent” and “operating costs” widely and loosely so as to allow such terms to serve as a catch all and in the hope that potential future discrepancies or disputes over costs appropriately chargeable by the landlord be resolved in the landlord’s favour.
The tenant’s goal, on the other hand, will be to limit the scope of such terms and to define them as narrow as possible so as to explicitly set out what the landlord may and may not charge the tenant for under these umbrella terms. Specifically, the tenant must attempt to minimize not only the range of costs for which the landlord may seek reimbursement from the tenant but the actual cost itself. Proper legal representation can therefore result in a capping of these additional costs under a lease so that, at the very least, a tenant can properly budget for the worst case scenario and determine whether the potential overall financial obligation makes the business venture feasible.
The moral of the lesson is best summed up by the old adage and caution against being penny wise and pound foolish”. Skimping on the negotiation process is a bad idea as no commercial space is too perfect or price per square foot too reasonable to justify passing on the negotiation of the balance of the terms contained in the commercial lease.