[GUIDE] Commercial Lease Agreements: How to Negotiate a Lease for Your California Business

Posted by: kevensteinberg
Category: Areas of Practice, Blog, Real Estate Law
Commercial Lease Agreements Paperwork

With the COVID-19 pandemic came an economic downturn that has affected the leases for small businesses. In many places, businesses (storefronts and offices) have closed for months at a time, and even if they aren’t closed, many businesses have seen less need for office space and less in-store traffic over the last year. The lack of need for commercial space has brought crucial questions about what to do about empty office space or unused storefronts to the forefront of business owners’ minds. You may need to work out solutions for your inability to use the commercial space, obtain rent concessions, alter the terms of the lease, change the termination conditions, adjust rent obligations, or adjust other terms as you try to negotiate existing agreements

Knowing how to maneuver around your commercial lease, renegotiate terms and protect your rights can help you prepare for an uncertain future and give your business the stability and flexibility it needs to succeed. This guide will help you know how you can best prepare for and negotiate the commercial lease for your California business. 

Step One: Review Your Existing Commercial Lease Agreement

Before you can start renegotiating a lease, you have to know the terms of your current lease agreement. Your existing lease provides the starting point for any future negotiations. It will outline the rights and responsibilities of both you as a business owner and your landlord. And there may even be provisions for what to do in the case of extreme circumstances like a natural disaster or global pandemic. By reviewing your lease, you will be able to identify the terms you need changed and identify provisions that may facilitate adjustments and negotiations. When reviewing your existing commercial lease, pay particular attention to: 

  • The rent amount, including allowable increases
  • The lease expiration and renewal options
  • Default and termination conditions
  • Guarantees
  • Insurance information
  • Operating covenants such as required hours or occupancy levels
  • Additional clauses, such as a “force majeure” clause or other circumstantial clauses. 

Step Two: Do Your Research and Determine Your Needs

After you have reviewed your existing lease and found the areas of the lease that need altering for your business to be successful, the next step is to determine and delineate your business’s needs moving forward. What are your current and future space needs? What is your budget and how has it been affected by the COVID economy? If you cannot make rent right now or your profits are suffering, when do you expect to recover and increase profits again? 

Along with determining your business’s specific needs, doing your research will help you know what renegotiation terms are reasonable in the current and local climate. The more information you have about local trends, the stronger your case for changing your lease terms may be. In your research, pay attention to local vacancy rates, market research, whether or not rental rates in the area are decreasing and by how much, and current traffic in the building. 

Step Three: Know What Concessions to Ask For

With your specific needs determined, it is time to move forward and consider the different relief strategies and possible alterations to your lease. Recognize that your landlord may be facing similar financial struggles as a result of the economic downturn and that they need tenants in order to make the mortgage and other payments on the property. With any lease alteration, you want to provide solutions that benefit both parties. In seeking alterations to the lease, you might propose changes to termination conditions, adjust rent obligations, or adjust other terms. Here are a three common alterations and relief strategies to consider: 

  • Rent reduction, deferral, or abatement. Depending on your circumstances, you may ask for your rent to decrease, for payments to be postponed for a set period of time, or for an abatement you may ask for payments to be suspended for a certain period with the promise to pay back that rent (sometimes with interest).
  • Subleasing: If your lease does not allow for subleasing, you may want to negotiate subleasing terms. This would allow you to lease part or all of your space to a third party, which would help cover the cost of rent. 
  • Extending the lease: You may be able to negotiate a lower rent or other favorable terms by offering to extend your current lease. 

Step Four: Engaging In the Commercial Lease Renegotiations

When you know the types of lease alterations you are seeking, it is time to communicate with your landlord and start the formal renegotiation of your commercial lease agreement. As you negotiate, remember: 

  • Be patient. Both the tenant and landlord are looking for a lease deal that protects their needs and works to their advantage. Achieving the best lease agreement for both tenant and landlord may take time and the negotiations may go back and forth a few times. 
  • Be willing to compromise. Your landlord may have different ideas than the solutions you propose, and while you should stand by and defend your needs and rights as a tenant, it is important to be sensitive to your landlord’s needs as well. You may need to make some sacrifices to reach an agreement about rent relief or other changes. 
  • Put the negotiations in writing. Keeping offers and counteroffers in writing will allow you to keep track of the negotiations and give you a record to refer to as you review the final lease amendments. Written negotiations will help you ensure that the final lease amendments include all agreed upon terms and conditions. 
  • Consult an attorney. An experienced real estate lawyer can help you identify your business’s needs and work with you through each step of the renegotiation process to ensure you get the best lease possible for your business. 

Protect Your Business: Consult an Experienced California Real Estate Attorney

Commercial leases are complex legal agreements. An experienced real estate attorney from Steinberg Law can advise you through negotiations to help relieve you from certain rent conditions and obligations, provide added benefits or aid to you for your inability to use the premises in whole or in part, and to ensure your lease provides the best terms for your California business. The team at Steinberg Law has used its 30 years of experience, technical expertise and creative negotiation skills to help numerous business owners get first-rate commercial lease agreements and maximize business opportunities. Whether you are negotiating a new lease, getting ready to sign a commercial lease as an individual or as a business, or you are renegotiating a lease, Steinberg Law can help.

Get the best deal for your business and contact Steinberg Law today. 

Author: kevensteinberg