Given the total business cost combined with the complexity of commercial leases (many can exceed 40 pages), leasing commercial space can seem like a very daunting task.
In this 5 part series, I will discuss fundamental negotiating basics every tenant should know to help mitigate risks and reduce costs when negotiating their commercial lease.
PART 3: Know Your Landlord – Large vs. Small
A lack of understanding regarding the difference between various types of landlords can cause tenants a great deal of frustration in negotiating a commercial lease.
Large landlords are typically banks, insurance companies, REITs and pension funds; small landlords are everyone else.
Large landlords lease their buildings based on certain predefined financial criteria (i.e. return on cash or return on the project from its acquisition, lease-up and sale). If the lease you are trying to negotiate does not meet, or even come close to, the predefined financial criteria, that lease will most likely not be signed. Large landlords generally have the financial means to support vacant space until the ideal criteria are met.
Small landlords typically own property purchased with their own money. Every month space is left vacant costs these landlords money. It is in the best interest of small landlords to lease space rather that have it sit vacant. However, small landlords have some predefined financial criteria as well and may have other interested tenants. Therefore, trying to negotiate a less than favourable deal simply because you are dealing with a small landlord is not a prudent strategy.
PART 2: Consider Your Negotiating Power