Lease Negotiation Checklist: Ensuring Favorable Lease Terms to Save You Money

Ready to sign a new restaurant or retail lease? Negotiating a favorable lease is crucial for franchisees, because it directly impacts your company’s financial health, operational flexibility, and overall success in a competitive market. This lease negotiation checklist will help ensure that you navigate future lease negotiations strategically to ensure favorable terms and save you money.

Review the Lease Terms 

• Read Everything: Carefully read through the entire lease agreement to understand its provisions, as well as its key terms including base rent, additional rent, lease duration, renewal options, and security deposits. Confirm (1) all exhibits and any documents referenced in the body of the lease are attached to the copy of the lease you sign and (2) all blanks are either filled in appropriately or marked N/A.
• Clarify Rent Commencement Date: If the lease term dates are subject to variables, make sure to include a Rent Commencement Date Agreement as an exhibit, and add language stating that when the tenant opens for business both parties will sign off on the form confirming the dates for the lease term.
• Understand the Clauses: Pay special attention to clauses related to maintenance and repairs to the leased premises; HVAC maintenance, repair and replacement; and common area maintenance (“CAM”) expenses. Look for and request vague language be clarified in order to avoid overpaying in the future.  

Negotiating Points

• Rent Terms: Discuss the potential for lower rent in exchange for a longer lease term. Present market research to support your proposed rent. Avoid CPI (consumer price index) increases as they are unpredictable and can result in significant rent increases over time.
• Concessions: Landlord concessions can take many forms. Inquire about landlord-provided tenant improvements or rent abatements, which landlords are often willing to offer for long-term leases.
• CAM Charges: Negotiate for more favorable terms on any common area maintenance (“CAM”) charges. Establish a first-year cap on CAM, and ongoing caps on CAM charges. Negotiate exclusions from CAM charges and definitely include audit rights.
• Exclusive Use Clauses: Consider requesting exclusivity in offering specific products or services. Ensure the lease protects against direct competition within the property.
• Assignment and Subletting: Discuss terms for assigning the lease to another party or subletting the space. Understand landlord approval requirements for assignments or subleases.

Finalizing the Deal

• Legal Review: Consult with legal counsel specializing in retail leasing to review the lease agreement and provide guidance. Address any legal concerns or recommendations raised by your attorney.
• Documenting Agreements: Ensure that all negotiated changes are documented in writing and added to the lease. Verbal agreements may be valid, but in many cases they are not enforceable in the event legal action is ever needed.
• Review Final Lease: Review the final lease draft to confirm that all negotiated terms are accurately reflected.
• Final Approval and Execution: Coordinate with the landlord to finalize the lease agreement. Sign the lease agreement and retain copies for your records.

Staying on Top of the Details

• Communicate: Maintain ongoing communication with the landlord, broker or property manager, as needed. Make sure you receive a fully executed copy of the final agreement.
• Lease Audits: Schedule periodic lease reviews to ensure ongoing compliance with terms. Some good times to consider a lease audit include: anytime there is a change in ownership or property management, if you’re looking to acquire additional locations, if your rent has increased, or if you’re doing triple net lease reconciliation.
• Reminders and Dates: If you’re using a lease management software like Leasecake, all your renewal dates and other business critical dates will be entered and you will receive automated reminders so you never miss any details. Otherwise, you will need to manage these so you don’t forget about upcoming lease renewals or options.
• Prepare for Renegotiation: If you plan to renew in place, lease renegotiation can start up as early as 24 months before your lease expiration date. Do not give up your negotiating leverage by waiting too late to begin renegotiations. If you’re looking to move you’ll want to be prepared well in advance. It's more challenging to argue certain points when the lease is about to expire.

Lease negotiation holds paramount importance for franchisees due to its potential impact on your ability to establish, operate, and ultimately succeed. A carefully negotiated lease can mean the difference between profitability and financial strain. Following the steps above should help ensure you have achieved the best possible terms for your business.

To learn more about how lease & location management software helps franchisees get organized and prepared for lease negotiations, visit Leasecake.com.

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