How to Negotiate a Cheaper Commercial Lease
Most Americans are unfortunately familiar with rocketing costs for securing a place to live. Home prices, as well as rental rates, have rapidly surged over the past two-plus years. But inflation isn’t limited to the residential space — small businesses are struggling as commercial leases jump through the roof.
In fact, it’s so bad, many small businesses can’t afford to keep up.
So today, we’re going to talk about the rent crunch facing small businesses, and what you can do to try to negotiate a cheaper commercial lease.
Small Businesses Falling Short on Rent
Alignable, a small business network, reported that in August 2022 the country hit its “highest rent delinquency rate among small businesses (SMBs) so far this year” — a whopping 40% in August that was 6 percentage points higher than July’s rate (34%). The last time it was this bad? March 2021, smack-dab in the middle of the pandemic.
Things were even worse among minority-owned SMBs, where 53% of small business owners couldn’t afford to pay their rent in full and on time.
Alignable cites numerous inflationary causes, including high gas prices, increased labor costs and reduced consumer spending, among others. But the biggest factor has been in the cost of rent itself. Of those polled by Alignable:
- 45% say their rent is at least 50% higher today than it was before COVID.
- 24% say their rent is at least 100% higher today.
- 12% say their rent is at least 200% higher today.
It’s not a stretch to say that rent is choking out the nation’s small businesses, making it nearly impossible for some to continue operating.
That said, you’re not entirely out of options if you’re a small business owner in this position. We have a few tips for companies looking to improve their rental situation
5 Tips for Negotiating a Cheaper Commercial Lease
1. Shop for promotions
Believe it or not, some landlords offer promotions to commercial tenants — just like an apartment might offer one free month of rent up front, a strip mall operator might offer something similar. (To be clear, though, these deals are more frequently found during more recessionary climates.)
2. Lease for longer
Risk-reward often works in the tenant’s favor as it pertains to lease length. A landlord might be willing to provide a lower rate for, say, a four-year lease as opposed to the originally offered three-year lease, because that’s one less year of rent they’ll need to worry about securing. (Only do this if you’re comfortable with the location — a longer lease term is also going to be more difficult to deal with if you decide you want to bail after a year.)
3. Don’t ignore the “fixturization period
Many commercial spaces aren’t going to be move-in ready — they’re going to need some changes or improvements. This is called the “fixturization period.” And if at all possible, you should negotiate with the landlord to handle one of the two sides of the sword for you. That is, make sure they’re either willing to let you rent out the space for free while you’re getting permits and paying to have those changes made, or that they’ll pay for the necessary changes while you pay full rent.
4. Make sure you’re getting the space you’re paying for
Some unscrupulous landlords might try to get you to pay for space you’re not using. In worst-case scenarios, they’ll simply fib about the square footage of the space; in others, they might try to include the building’s common spaces in the measurement, or they might not have updated measurements that have since changed. Regardless of the situation, get your own independent measurement, because lease rates are ultimately determined by a per-square-foot basis.
5. Negotiate base rent outright
Yes, we’re in an economy that largely favors landlords, so they’re largely setting their own terms. But that doesn’t mean you shouldn’t at least try to negotiate. Especially if you’re looking for a new space (as opposed to risking irking a landlord over space you’re currently renting), respond to a base rent offer with your own lower figure, and see if the landlord is willing to meet you somewhere in the middle.
Trying to Improve Your Small Business’s Financial Situation?
Rent isn’t the only place where small businesses can shore up struggling financials.
McManamon & Co. offers a number of services that can help improve your top and bottom lines. For instance, our tax arm provides creative and innovative tax advice that will keep you on Uncle Sam’s good side while providing better savings come tax time. And our consulting personnel can put their decades of collective experience to work by providing you with proactive cash flow planning to maximize your return on investment.
Learn more about what we can do for you. Call us at 440.892.8900 or contact us online today.
Tags: McManamon, McManamon & Co., small business, small business consulting, small business finances | Posted in McManamon & Co., small business, Small business finances