Five Tips for Negotiating a Commercial Real Estate Transaction

If you have ever owned a business or managed the operations for a business of any size, you’ll know that a commercial lease is an essential part of any business. A lease that is in your favor will set the foundation for long-term business success—so it is necessary to do your best to ensure that the lease works for your needs. In addition, since this document will define the relationship you have with your landlord for months or years to come, you and your attorney should take extra care during the negotiation to ensure that you arrive at terms that will remain functional and beneficial for both parties both now and in the future.

Here are five things to keep in mind when negotiating a commercial real estate transaction:

Know Your Needs

The first step in an effective negotiation is to have a firm grasp on what you need out of the lease or sale. Whether it’s location, zoning requirements, square footage, or any other variable, you should know exactly what you need before you even start looking at properties. If it helps narrow things down, you could make a list of “Must-haves” and “Wants,” which can help you distinguish between absolute requirements in your new space and things you could compromise on, if necessary.

Set Budget Beforehand

Now that you have a general idea of what you’re looking for, it’s time to set a budget. Again, you should determine this number or range firmly before you ever approach a landlord, so that when negotiations begin you won’t commit to something way out of your price range. No matter how nice a property may be, if it costs more than the rest of your business expenses combined, that’s only eating into your profits at the end of the day. And who wants that?

Due Diligence

Now that you’ve done your homework, it’s time to start your investigation—and this is more than just researching the market and preparing your own documentation thoroughly. First, you’ll want to find a good commercial real estate agent. An agent can help you tremendously at this stage, as they will be able to help you determine what fits in your price range, knows what to look for in terms of potential building concerns, as well as understands the local market. Once you have a property in mind, do your due diligence and research every aspect of the building, from rental history to current tenants to any environmental concerns. Your real estate agent can assist with this process, but you’ll want to be personally familiar with every aspect of the property you’re interested in before you even start negotiations.

Making an Offer

Now that you know everything there is to know about your potential property, it’s time to make an offer. There are different schools of thought on whether to start low and work your way up to market value through negotiation, or to start out closer to market value to avoid insulting the seller, but this can be situational and depend on what you know about the seller. If you’re leasing, this process can be even more tricky. When it comes time to make an offer, it’s essential to have an expert by your side, so consult with your commercial real estate agent or attorney before making the first move.

Treat All Parties With Respect

Surprisingly, this element of negotiations is often overlooked, but it can truly make or break a deal. It’s essential to always treat the party across the table with respect, no matter how strained or heated negotiations become. You don’t want to alienate your potential landlord by coming across as emotional or hostile, even if you feel that the situation has become tense and you feel that the other party is no longer deserving of respect. Keeping your personal feelings to yourself and remaining calm and professional will always serve you well in the long run.

For more information about negotiating a commercial transaction, contact us today.