Three Easy Tips for Lease Negotiations

In negotiating leases, there are many potential pitfalls. Below, we highlight three common issues, as well as smart strategies that will lead to better outcomes at the negotiation table.

A failure to distinguish important issues from lesser issues. Often, leases have too many comments and the client is satisfied if they feel that the majority of the changes have been made. This, however, is hardly the truth. Some issues are much more important than others. Recently, we were negotiating a complicated lease where short-term parking was critical. At the end of the day, we conceded numerous lesser issues to resolve the one we needed. Yes, it was likely that we knew the other side was keeping score, so we had left issues that mattered much less to get the one we wanted.

Overlooking the length of the lease term. For instance, it is easier to predict what might happen during leases of five years than during leases of 10 years or longer. A good issue here is the pace of increases for additional rent. For years, we had low inflation and a 3-5% per-year cap on increases was standard. But, how does this impact the economies of a 10-year deal with two five-year options? Does the landlord need the right to reset charges at some point? And can the tenant afford to use a consumer price index (“CPI”) clause?  There are different answers for short leases and for longer leases.

Many landlords and tenants simply do not read their leases. Long ago, one of my best teachers said, “Your signature is not an ornament.” So true. Far too often I get a call to explain what the lease says. Sadly, the answer is very clear and the caller had not read the document they agreed to. Leases have obligations and the best way to avoid problems is to understand the scope of these obligations.