How to Negotiate a Better Lease

Consider a "blend and extend" If you have two years left of a five-year lease, try getting some immediate rent relief — in terms of free months of rent or a lower monthly rate — in exchange for signing a new five-year lease, provided you feel assured of your ability to fulfill a long-term contract.

Find an alternative location Get a better seat at the negotiating table by having a fallback space if your landlord balks at a deal.

Obtain termination powers Try to get an agreement where either party can terminate the lease with 90 days notice. Landlords don't like it but in this market it's easier to negotiate exit strategies.

Watch your annual increases An annual rise of 3 percent seems to be the industry standard around the country. A landlord might ask for a 4 percent increase in exchange for funding some improvements in your space.

Don't rely on oral statements Do things in writing by certified mail and keep copies of everything. Do not rely on what someone tells you. If the landlord says "Don't worry about rent this month," say "I want something in writing for my records."

Beware of personal guarantees Try to avoid personally guaranteeing the payments on your lease. A landlord can go after your own assets if your business fails.

A struggling tenant who sincerely wants to pay can look attractive in this market. Landlords are falling on hard times, too. And no one wants to pursue a lawsuit against a vanished tenant: Landlords have very little to gain by going after a tenant who is unable to pay. Lawsuits are expensive, and collections after a favorable verdict are difficult.

So how urgent is the need to take advantage of the market? Seize the day but don't expect a quick sunset. "Given the expected slow pace of the economic turnaround, good deals are going to be with us for awhile," says Bach. "They should be around through the first half of next year."

Getting Some Help

Negotiating a lease can be confusing, especially if you are not up to date on the jargon characteristic of the real estate industry. That's why business tenants often turn to their brokers for advice come lease renewal time. And that can be smart, since landlords will often avoid proposing questionable terms when they know experts will be perusing the fine print. Just the fact that you have a broker will encourage your landlord to offer a better deal.

Prior to deciding on a broker, though, ask for references in terms of current clients. Then get feedback from the references. Did the broker pursue better lease terms tenaciously? Bring in a lease that was "on budget" in terms of your current needs? Complete the work on time? And how well has the broker's lease withstood slow erosion by operating expense pass throughs?

Be aware there are two types of brokers: "tenant" and "landlord." The latter represents space marketed by property owners, so there can be a conflict of interest when it comes to lease terms. It's smarter to use a "tenant broker," who represent tenants exclusively.