B. How This Book Can Help You Negotiate a Favorable Lease

I/4



NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



introduction, will give you a quick

roadmap to the dozens of specific clauses

covered in the second part of the book.

Chapters 7 through 17 address specific

lease provisions, their legal meaning, how

they will affect your business, and how to

change a particular clause to get what you

want out of your lease. The types of lease

terms covered in these chapters include

rent, security deposits, improvements and

alterations, maintenance, parking, renewal

options, and other provisions common to

most leases, such as restrictions on use of

the premises and the landlord’s right to terminate the lease.

Reading this book will help you understand the dense, incomprehensible language of most commercial leases, what

dangerous terms you should avoid, what

tenant-friendly terms to press for, and what

clauses you can live with. You’ll find all the

information and strategies you need to negotiate with an experienced landlord. This

practical guide also suggests ways that you

can work cost-effectively with an experienced real estate lawyer, broker, and other

professionals as you negotiate your lease.



Guide to Icons Used in This Book

Reference or further reading: This

icon lets you know where you can

read more about the particular issue or

topic discussed in the text.

This icon means that you may be

able to skip some material that

doesn’t apply to your situation.

This icon alerts you to a practical

tip or good idea.

This is a caution to slow down and

consider potential problems you

may encounter.



WHAT KIND OF SPACE DO YOU NEED?



I/ 5



Common Major Lease Clauses

Clause name



What it’s about



Where it’s discussed



Parties or

Lessor and Lessee or

Landlord and Tenant



The names of the landlord and tenant



Ch. 7, Sec. B



Premises



A description of the space you’re renting



Ch. 7



Rent



Explains how the rent is calculated



Chs. 4 & 9



Term



When the lease begins and how long it

will run



Ch. 8



Deposit



The security deposit demanded by the landlord



Ch. 10



Hold Over



What happens if you don’t move out as

planned at the end of your lease



Ch. 8, Sec. D



Restrictions and requirements on how you

use your rented space



Ch. 7, Sec. D



Explains how utilities are metered and

how costs are apportioned



Ch. 12, Sec. B



Describes which taxes you will have to

pay for, and how much



Ch. 9, Sec. B



Insurance &

Indemnity



Covers which insurance policies you must

take out or pay for



Ch. 9, Sec. C; Ch. 15



Security



Covers the building security and who

pays for it



Ch. 13, Sec. E



Describes available parking and how it’s

paid for



Ch. 13, Sec. A



Covers the common area maintenance

(CAM) costs you have to pay for



Ch. 12



Explains which alterations you may

make and whether you need permission;

delegates repair duties



Ch. 11



Use



Utilities



Taxes



Parking



Maintenance



Alterations &

Repairs



I/6



NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



Common Major Lease Clauses (continued)

Clause name



What it’s about



Where it’s discussed



Assignment &

Subletting



Describes the conditions under which you

can turn space over to another tenant



Ch. 14, Sec. F



Options



Covers your rights to extend, expand, or

contract the amount of space you rent or

the lease term. May also cover your right

to buy the property



Ch. 14, Secs. B–E



Defaults & Remedies Explains what happens if you or the landlord

fails to live up to the lease

Destruction



Ch. 16



Covers what will happen if all or part of

the building is destroyed



Ch. 14, Sec. G



Describes what happens to your lease if

the building is condemned by a government

entity



Ch. 17, Sec. C



Subordination,

Nondisturbance,

& Attornment



Financing clauses covering what happens

if your landlord’s lender forecloses on a

loan that’s secured by the building



Ch. 17, Sec. A



Estoppel



Explains your duty to provide a signed

statement that you and the landlord are

complying with the lease terms



Ch. 17, Sec. B



Your agreement as to who pays the

winner’s fees and costs if a disagreement

ends in litigation



Ch. 16, Sec. E



Your promise that you will provide someone

who will guarantee your financial duties

under the lease. The guarantor must also

sign the lease



Ch. 17, Sec.G



The mechanism for settling disputes, short

of resorting to a lawsuit



Ch. 16, Sec. D



Condemnation



Attorney Fees



Guaranty



Dispute Resolution



■



Part I:

Finding and Evaluating Space and

Developing a Negotiation Strategy



Chapter 1

What Kind of Space Do You Need?



A. Do You Need to Move Now? ............................................................................... 1/4

1. Working From Home ....................................................................................... 1/4

2. Staying in Your Current Rental ......................................................................... 1/6

3. Buying Instead of Renting ................................................................................ 1/7

B. Setting Your Priorities ........................................................................................... 1/9

C. Rent, Deposits, and Improvements .................................................................... 1/10

1. Rent ............................................................................................................... 1/10

2. Deposits ........................................................................................................ 1/10

3. Other Improvements and Expenses ................................................................ 1/11

D. Location ............................................................................................................. 1/11

1. Neighborhood and Neighbors ....................................................................... 1/11

2. Commuting Time ........................................................................................... 1/13

3. Access to Public Transportation ..................................................................... 1/13

4. Expressways, Freeways, and Throughways ..................................................... 1/13

E. Length of the Lease and When It Begins ............................................................ 1/13

1. Length of the Lease ........................................................................................ 1/14

2. Move-In Date ................................................................................................ 1/16

F. Size and Physical Features ................................................................................. 1/16

1. Size of Space ................................................................................................. 1/16

2. Interior Needs ................................................................................................ 1/17

3. Soundproofing ............................................................................................... 1/18



1/2



NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



4. Operating Windows ...................................................................................... 1/18

5. Control of Heating and Cooling .................................................................... 1/19

6. Storage Space ................................................................................................ 1/19

7. Private Restrooms .......................................................................................... 1/19

8. Technological Capacities ............................................................................... 1/19

G. Other Tenants and Services in and Near the Building ........................................ 1/20

H. Parking ............................................................................................................... 1/21

I. Building Security ............................................................................................... 1/21

J. Image and Maintenance .................................................................................... 1/22

1. Image ............................................................................................................ 1/22

2. Maintenance .................................................................................................. 1/22

3. Nonsmoking Policy ....................................................................................... 1/22

4. Visibility and Signage .................................................................................... 1/23

5. Special Requirements .................................................................................... 1/23

K. Expansion or Purchase Potential ........................................................................ 1/23

1. Ability to Expand Space ................................................................................. 1/23

2. Potential Purchase ......................................................................................... 1/23

L. Preparing Your Rental Priorities Worksheet ........................................................ 1/26

M. Subleasing Space ............................................................................................... 1/26



WHAT KIND OF SPACE DO YOU NEED?



Read This Chapter If …

This chapter is for those of you who are

considering a move, evaluating a likely

rental, or thinking about subletting. It’s especially useful in the following situations:

• You’re a newcomer to the game of

commercial leasing, and need basic

information such as how landlords

measure space.

• You’d like some tips on how to evaluate space, particularly whether it fits

your needs.

• You’re interested in expansion or purchase rights in your lease.

• You’d like guidance on how to systematically arrive at your rental priorities, which can form the basis for your

lease negotiation strategy.

You can skip this chapter

if you’re an old hand at

commercial leasing and understand

space measurement, or you’ve already picked out your rental and

need information on negotiating the

lease.



Y



our business needs should shape

your search for commercial space.

Rent will be an obvious consideration, as will the building’s location, and

the size of the space. But for most small

businesses, finding the right space involves

considering more than price, location, and

size. Parking, the ease of making improve-



1/ 3



ments, the types of nearby complementary

and competing businesses, and numerous

other factors, such as the building’s image

and potential for expansion, may affect

your choice of a rental space.

Depending on your requirements, the

number of rentals that will satisfy them will,

naturally, shrink.

EXAMPLE: John’s company, Hi Fives,



manufactures sports equipment. He’ll

need space with a loading dock and

floors strong enough to support his

equipment. The image of the neighborhood isn’t much of a factor, nor is the

makeup of nearby businesses.

EXAMPLE: Mary’s business, a children’s



clothing store, will do best if it’s near

other retail establishments, preferably

those that parents are likely to frequent. She’s on the lookout for welcoming, ground-level space, with lots

of windows and light.

Forces beyond your control may further

limit your choices. The availability of commercial space will depend in large part on

current market conditions. Sometimes the

vacancy rate is high, meaning you’ll have a

good selection of rental spaces and relatively

low rents. Other times the vacancy rate is

low, meaning you’ll have fewer choices

and higher rents. But regardless of your

requirements or market conditions, you can

almost always locate suitable space if

you’re willing to invest some time and

effort into the process.



1/4



NEGOTIATE THE BEST LEASE FOR YOUR BUSINESS



Whether you’re a small start-up or a longterm established business—a fledgling

Internet enterprise or a bookstore passed

down from your grandfather—you should

begin each search by carefully thinking

through your needs. This chapter shows

you how to analyze what’s most important

in a rental—before you hit the pavement or

engage a broker to help you find the right

spot. A clear understanding of what you do

(and don’t) want for your business will

save precious time and money, commodities

that you undoubtedly want to plow into the

business itself.



A. Do You Need to Move Now?

Before you plunge headlong into the

search for suitable commercial space, think

carefully about whether you really need to

find space now. It may make more sense to

run your business from your home. Or, if

you’re already renting space but looking to

move, you might consider ways to improve

your current lease situation, and avoid the

expense and inconvenience of relocating.



1. Working From Home

If you’re just starting out in a business that

doesn’t require significant space or ready

access to the public, maybe you can keep

expenses low by working out of your

house or apartment. You may have space

in your basement or garage or spare bedroom that you can use for your business.

Or, it may be possible to devote a corner of

the dining or living room to business

purposes, while using the rest of the room

as part of your residence. Attractive office

furniture is widely available that blends

nicely with regular household furnishings.

Home-based businesses are quite feasible

these days because technology lets you

keep in touch with the world through faxes

and email. And delivery companies such as

UPS and Federal Express compete with the

U.S. Postal Service for moving packages

and hard copies of documents speedily and

reliably to virtually every imaginable location.

Credit cards can facilitate the purchase or

sale of goods and services from or to a

home-based business.



WHAT KIND OF SPACE DO YOU NEED?



But while your house or apartment may

work just fine if you have a small office-type

business or are working as a consultant, it

normally won’t meet your space needs if

you’re in a retail or wholesale business that

requires customers or clients to come to

you. Similarly, service businesses—such as

restaurants and repair services—require

commercial space.

If a home business seems right for you,

make sure there are no legal restrictions to

your working at home. In particular, here’s

what to check:

• Local zoning ordinances. These may

restrict the type and amount of traffic,

bar outside signs, prohibit or limit the

number of employees, and set a limit

on the percentage of the floor space

that can be devoted to the business.

Contact the office of your city attorney,

city manager, or mayor for information on zoning ordinances that may

affect your business.

• Deed restrictions in condominiums and

planned unit developments. These

often prohibit commercial activities,

including home businesses. Review

your covenants, conditions, and restrictions (CC & Rs) for details.

• Apartment leases or rental agreements.

These sometimes specify that the

premises may be used for residential

purposes only, or restrict use to

specified businesses, such as family

daycare.

Even if there are no restrictions, a home

business may not work for you personally.



1/ 5



You might not want customers or business

associates intruding into your family’s space,

and you may be concerned that you’ll have

a hard time putting business aside if it’s as

close as the next room. Many home business

entrepreneurs have a hard time resisting the

attractions (and distractions) of the kitchen,

television, and household chores. And if

you have small children, working at home

may be especially difficult.

Businesses that are run from home may

also need to comply with federal and state

laws regarding access for disabled persons.

(See Chapter 12, Section D, for more on

this issue.)

If you run a home business, you may

need special insurance. Your homeowner’s policy may not apply if you use the

premises—your home—for commercial purposes. This means that even if you merely

have a computer and a file cabinet that you

use to run your home-based business, your

policy may not cover business property that is

destroyed in a fire or other disaster at your home.

Even worse, once you begin using the home

as a place of business, your homeowner’s insurance may not protect you if someone, even a

nonbusiness visitor, is injured at the home. Be

sure to raise these concerns with your insurance

agent or broker, who may suggest that you purchase a commercial policy or a special business

rider to your homeowner’s policy. (Chapter 9,

Section C, explains business insurance issues

for non–home-business outfits in detail.)