Negotiating a commercial lease is a key part of securing business premises on fair and workable terms. The right lease terms can improve cash flow, support growth, and protect your business from unexpected risks. Poorly negotiated leases, on the other hand, can result in hidden costs and rigid obligations.
In this article, we’ll explore key tips and strategies for negotiating commercial leases. By avoiding common mistakes and seeking professional guidance from a commercial lease lawyer, you can get the best outcome for your business’s lease agreement.
Key Takeaways
Research market rates before entering negotiations
Understand your needs and prioritise key terms
Key negotiable areas include rent, term, outgoings and make-good obligations
Get legal advice before signing a lease
Start early – rushed negotiations can reduce your leverage
Preparing for Negotiations
Preparation is the foundation of any successful negotiation. Here are the key steps to take before you begin negotiating your commercial lease:
Step 1: Researching the Market
Before negotiating, understand average rent and terms for similar properties in your area. Use this data to justify your position and identify unreasonable clauses.
Check out our guide for business owners looking to lease a business premises for more information on your rights and obligations as a tenant. We also discuss the different types of business leases in that article.
Step 2: Know Your Priorities and Limits
Clearly define what you need – location, fit-out flexibility, lease term, rent caps. Identify which terms are non-negotiable versus nice-to-haves.
Be realistic about your needs and limitations and what you can compromise on. Knowing your priorities will help you stay focused during negotiations.
Step 3: Get Professional Advice
Engage professionals such as real estate brokers, commercial lease lawyers, or consultants who specialise in commercial leases. They can provide valuable insights and help you understand what terms are ‘usual’ or unfair.
If you do engage a lawyer to negotiate a lease on your behalf, make sure they are aware of:
- your businesses goals
- the priorities you don’t want to compromise on
- whether you have had an informal discussion with the lessor or the rental agent
Key Lease Terms to Negotiate
When negotiating a commercial lease, there are several critical points to address. These are discussed below.
1. Starting Rent
Rent is often the most significant expense in a commercial lease. Negotiate a fair base rent and be clear on how and when rent increases will occur.
Most landlords won’t be inclined to accept an offer that’s lower than the advertised rent. However, your research on market rates can be used to justify a lower price offering with real data. There may also be macro-economic factors that may mean the landlord is willing to negotiate the price.
You might find that, even if they aren’t willing to agree to a lower price for the entire lease term, they may be open to negotiating:
- a reduced rent period (generally at the start or end of the lease);
- a rent free period
- fit-out works at the landlord’s cost (or at least by sharing some of the cost)
2. Lease Duration
The ideal lease term depends on your business stage. Short-term leases offer flexibility—ideal for new or growing businesses. Long-term leases provide stability and can benefit established businesses with predictable needs.
Longer terms may give you more leverage in negotiations, but they also lock you in. If your business grows faster than expected, you could outgrow the space before the lease ends—leaving you with limited options.
Balance flexibility with certainty and align the lease term with your growth plans.
3. Renewal Options
Not all commercial leases include a renewal option, and landlords aren’t legally required to offer one. If renewal is important, negotiate it upfront and seek fixed conditions like capped rent increases for certainty.
Be cautious about revealing your intention to stay long term—if the landlord assumes you’ll renew, they may use it to their advantage.
Understand your renewal obligations under the lease, including notice periods, renewal fees, and how rent will be reviewed (e.g. CPI, fixed % or market rate). Also consider that longer lease terms may expose you to more frequent rent increases over time.
That said, many landlords prefer to renew with existing tenants to avoid vacancy or renovation costs – so use this to your advantage when negotiating.
When reviewing lease terms, landlords often insert renewal mechanisms. Our dedicated article on auto-renewal clauses explains the risks of automatic renewals and how you might be able to negotiate fairer notice periods.
4. Maintenance and Repairs
Clarify who is responsible for maintaining and repairing the premises. Some leases may require the tenant to handle all maintenance, while others might include specific landlord responsibilities.
Generally, the landlord is responsible for all major structural repairs to the existing building, plant or equipment. Ensure these terms are clearly defined in the contract to avoid future disputes.
It can be a good idea to inspect the premises to get a feel of the maintenance or repairs you may need to undertake during the lease. This won’t always be clear, but there may be signs that indicate that the premises is in need of substantial maintenance or repairs.
5. Make Good Obligations
Most commercial leases include a make good clause, requiring the tenant to return the premises to its original condition at lease end.
If you started with a blank shell, this may mean removing the entire fit-out—unless agreed otherwise. Some landlords may keep the fit-out; others may require it to be stripped out or reinstated.
These obligations are often overlooked until the end of the lease but can be costly. It’s important to negotiate make good terms upfront, especially if your fit-out adds value.
Practical Negotiation Tips
Successful lease negotiations require preparation, timing, and a clear understanding of your priorities. Here are some key strategies to improve your outcome:
Start early: Begin negotiations well before your ideal move-in date. Rushing reduces your leverage and may leave you stuck with unfavourable terms or limited options.
Know your priorities: Identify what’s essential for your business – like rent caps, lease term, or flexibility – and focus on securing those terms.
Be ready to walk away: If key terms are non-negotiable or pose a risk to your business, it’s better to walk than commit to a bad deal.
Balance give and take: Negotiation involves compromise. If you concede on one term, aim to gain elsewhere – like rent-free periods or reduced make-good obligations.
Giving yourself enough time and space to negotiate allows you to consider alternative premises, seek legal advice, and enter the lease with confidence.
Common Mistakes in Negotiations
You should aim to avoid these common pitfalls during the negotiation process:
Focusing only on rent: Other terms like renewal options or repair obligations can have a greater long-term impact.
Overlooking exit strategies: Plan for flexibility – consider clauses for subletting, assignment, or early termination.
Failing to get advice: A small investment in legal advice can prevent expensive surprises.
Before starting negotiations, it’s important to understand the red flags to look for in commercial leases that could expose your business to unnecessary risk.
Case Studies
Learning from real-world examples can provide valuable insights. Here are a few case studies of successful and unsuccessful lease negotiations:
- Successful Negotiation: A retail business was able to secure a lower rent by agreeing to a longer lease term and taking on minor maintenance responsibilities. The business also negotiated the make-good clause and were not required to return the premises to its original state on exit.
- Unsuccessful Negotiation: A tech startup focused solely on getting the lowest possible rent and ignored the maintenance terms. They ended up with significant unexpected expenses for repairs and maintenance, which strained their budget.
Frequently Asked Questions
What should I research before negotiating a commercial lease?
Market rents, comparable properties, local trends, and the landlord’s reputation.
How can I determine what lease terms are negotiable?
Rent, rent increases, duration, renewal options, outgoings, make-good, subletting rights, and early termination clauses.
By consulting with our commercial lease lawyers, you can ensure that you’re not missing opportunities to make the lease more favourable for your business.
What are the biggest mistakes to avoid during lease negotiations?
Focusing only on rent while ignoring repair, renewal, or termination clauses.
Another mistake is failing to conduct thorough due diligence on the property and landlord, which can lead to unpleasant surprises down the line. Additionally, not having an exit strategy can leave you vulnerable if the lease terms become unfavourable.
How can I effectively prioritise my needs in a lease negotiation?
Start by listing your must-haves and nice-to-haves, distinguishing between essential terms and those that are less critical.
Consider the long-term impact of each lease term on your business operations and growth. For example, the lease duration might be crucial if you anticipate significant expansion.
Consulting with advisors, such as our commercial lease lawyers, can help you focus on what truly matters and negotiate more effectively.
When should I walk away from a lease negotiation?
Knowing when to walk away from a lease negotiation is crucial to protect your business interests. If the terms are inflexible, expose your business to excessive risk, or the landlord is unwilling to negotiate.
Additionally, if the landlord has a poor track record or there are red flags during the negotiation process, it’s wise to reconsider. Walking away can sometimes be the best decision to avoid entering into an unfavourable commercial lease.
About the Author
Farrah Motley
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