Negotiating a Commercial Lease

Now that you know the location of Blow Out! Beauty & Dry Bar, what you may not know is how the negotiating process works in a commercial lease and neither did I. I learned the hard way of all of the do’s and don’ts in the negotiating process.

In a new construction commercial development, the developer (AKA landlord) builds the structure of the building complex then mandates the leasing tenant to pay for the construction of their individual space, crazy right? The developer is responsible for the land, the steel beams, the roof, and a few other small things. The leasing tenant of a new space is responsible for everything inside of those steel beams, roof, dirt floor, etc. and this is called the tenants “shell.”

You may have heard of someone referring to a piece of property as a “cold, dark, shell”: this means that only the outside walls, structure of the building with the roof, is provided for the developer. The space that the tenant is leasing is a “cold, dark shell” (unfinished space with essentially nothing inside). Yes! you read it correctly, NOTHING inside: no electrical, no plumbing, no flooring, no HVAC, NOTHING!

The negotiating portion of a new lease is critical when starting a new business. You may have a certain amount of money saved up to start your business, but then you are faced with a $100k up-fit (construction/modification of a newly acquired or designed space to accommodate the tenant’s need) that you were not aware of. Making sure that you do your research on what you can and can’t negotiate is vital to your financials. Some businesses can get away with a $5k HVAC, while other types of business’ spend $50k+ on a HVAC for a small commercial building. If you need the developer to pay for your HVAC unit, in terms that you sign a 10 year lease…now is the time to negotiate the deal.

At the end of the day, you may be able to pay the rent on the building, but if the developer is not willing to negotiate any of the up-fit expenses, then your deal could be forfeited. Do your research and be prepared!