How to negotiate commercial rent reduction
When negotiating a retail lease, it is important to research the area thoroughly and to read the lease carefully so you have some leverage.
Most landlords only reduce rent when there are legitimate arguments from prospective tenants or when a property is difficult to lease. By providing detailed reasons for requesting a rent reduction, you will increase your chances of lowering monthly rent for the duration of the lease.
Research the area to determine the average price for a commercial space by talking to other business owners or by contacting the local Office of Property Assessment. Compare retail spaces that are similar in square footage and overall condition to the one you want to rent. Ask for a reduction in rent if the lease price is not within the average price range for the area. If the landlord does not agree to an overall rent reduction, the landlord might offer reduced rent for the first three to six months of the lease.
Carefully read the lease agreement to determine the type of leverage you have before asking for a rent reduction. There are two types of commercial leases used by landlords: gross leases and net leases. Gross leases include the cost of repairs, property taxes and utilities in the rent. Net leases do not include these costs in the rent. You will become responsible for these additional costs upon signing a net lease. If you will be responsible for the cost of utilities, insurance, property taxes and property maintenance, ask for a reduction in the rent. If the landlord retains responsibility for taxes, repairs and insurance, getting a rent reduction might be more difficult.
Sign a longer lease in exchange for a reduction in rent. Since longer leases protect landlords from losing money while trying to find a new tenant after you vacate the space, your landlord might be willing to lower the monthly rent or take on other expenses such as utilities or repair costs if they are not currently covered in the lease.
Ask for a rent reduction on commercial properties that need major repairs (you might be responsible for repair expenses depending on the type of lease) or properties considered undesirable (unfavourable location, inappropriate size for many businesses).
Ask for a cap in yearly rent increases for the duration of your lease. Landlords increase rent each year based on property values. Capping these increases can help you keep costs down.
Do not sign a lease unless you agree to all terms; it can be difficult and costly to get out of a commercial lease before it expires.
- Current retail rent averages for the area
- Lease agreement