Commercial Tenants Can Benefit From Being Aggressive Negotiators

A few months ago, the New York Times published an article reflecting on the fact that a number of well-regarded Manhattan restaurants have recently been forced to relocate or close their doors entirely due to rent escalations. It is a sign of the times that many of these restaurants will be replaced by “chain stores” willing to pay premium rent for premium locations. Rising rents are not confined to space rented for retail stores and restaurants. Crain’s New York Business newspaper reports that rents for office space in Manhattan have also escalated considerably in recent months.

Despite the fact that commercial rent in NYC is not cheap, commercial tenants can protect their interests by: (1) using due diligence to select a good location for their businesses; and (2) negotiating the best commercial lease possible with a landlord.

Selecting a business location can be the single most important decision any business owner can make. For retailers, having a good location is critical. According to Inc. magazine, business site selection in the 21st century is rapidly becoming a science thanks to elaborate computer modeling programs and extensive demographics databases. After you choose one or more areas as potential sites for your business, demographic databases can reveal in great detail how much money consumers in the area will normally spend on products or services like those you will be offering. Computer modeling programs can categorize potential customers by age, education, how much money they make and where they tend to shop. If you know “the traits that define your customers,” computer modeling can give you remarkable assistance on business site location.

Lease negotiations

Before heading into lease negotiations, it is recommended that commercial tenants identify at least two or three locations that would work for their business. Using an electronic spreadsheet, tenants should enter the basics such as leased square footage, unit lease price, maintenance expenses, the required lease term and the pros and cons of each property. This spreadsheet can help immensely during lease negotiations for comparison purposes. The next step is to ask for pro forma copies of the leases for the preliminarily selected sites and then read them carefully. As the author of a recent article published in
Forbes magazine observes, “commercial leases are like belly buttons – each one is different.”

Another suggestion for handling lease negotiations is to be prepared to “negotiate aggressively” in order to achieve the best deal possible. The most effective negotiating posture is to consider the negotiations to be like a civilized battle which you need to try to “win.” In far too many instances, tenants enter into lease negotiations unprepared.

Potential tenants should also be prepared to walk away. If the landlord simply will not make the necessary concessions, you do not want to lock your business into a lease you will not be happy with. Finally, remember that it is perfectly fine to ask for more concessions and perks than you really need. Never be afraid that the landlord may give a resounding “no” to some concessions that you ask for. Offers and counteroffers are simply part of the negotiating game. Keep in mind that no tenant ever gets more than it asks for.

Seek legal counsel

Negotiating for commercial space in NYC is not for the faint of heart. If you are going to be entering into a lease for commercial space, you should contact a New York attorney experienced in handling landlord and tenant transactions. The attorney can help you negotiate a commercial lease protecting your interests.