Common Commercial Landlord Concessions
Landlords are just like other service providers in the sense that they must entice potential consumers to choose their products over neighboring ones that may be equally attractive. What attracts a commercial client to lease a space varies by the type of business and other considerations. They aren't just interested in esthetics. The business tenant must consider:
- traffic if retail
- accessibility no matter what type of business
- competitor tenants
- other costs, such as net and triple net
- insurance costs
- complementary tenants, such as related product sellers
If the tenant finds more than one location that's suitable and matches enough of their criteria to be considered, then they must look at any other factors that could seal their decision. When there is little difference between your client’s building and others in the area, advise him to determine which concessions he can and cannot afford to offer to secure an occupant.
Many landlords will offer free rent for a given period of time, which can entice temporarily cash-strapped tenants, depending upon the length of the lease. This offer usually extends for one month to one year, after which time the rental rate agreed upon in the lease will be enforced. Sometimes it's not the first month or front-loaded. The landlord may offer the six month free, or the last two months of the lease period would be another way to handle free rent.
Higher Tenant Improvement Allowance
Depending on the location, landlords may offer an extra $20 to $50 per square foot for tenant improvements, which may range from replacing flooring to adding shelving or removing interior walls. This is especially powerful with retail tenants. They often have major space design and fitting decisions to display merchandise and provide the proper customer traffic flow to stimulate sales. How you direct a customer through the store can increase impulse purchases dramatically.
Shorter Lease Period
Though this could end up hurting a tenant if the landlord chooses to evict, a shorter lease term almost always benefits the tenant. This is because the needs of an individual or business are far more unpredictable than those of a landlord. Whereas a landlord may obtain a bit more rent with a new tenant, an individual entity may require more or less space, or have substantially more or less money to spend on rent. Giving the tenant an earlier out can backfire on the landlord.
If the landlord is unwilling to reduce rent, he may be willing to offer a move-in allowance, which can take the bite out of the relocation process. This allowance may cover the cost and labor of packing, transporting and situating the tenant’s belongings. It is a very expensive proposition to relocate a business. This is true even if it's not retail, but instead offices or warehouse space.
Consent to Sublease
This can be a valuable lease term to negotiate, and one that doesn’t necessarily cost the landlord any money out of pocket. If a landlord cannot offer monetary concessions, potential tenants may be able to secure more favorable lease terms. Consent to sublease could be an extremely attractive option should the tenant decide that the space will no longer work.
This can backfire on the landlord if the wrong type of people or businesses end up subletting. A carefully worded lease document would need to specify the terms, tenant/business types, as well as behavior or business practices that are not allowed.
Reduced or Waived Fees
Parking permits, Internet access, gym memberships, and washers and dryers are all popular, costly amenities. If a landlord can waive or compensate any fees associated with these features it could be enough to sway a tenant.