Blog

At Legacy Commercial Group, we work closely with clients to help them negotiate landlord-favorable lease terms upon purchasing or exchanging new commercial property. While most of our clients are experienced in lease and commercial property contract negotiation, many investors new to commercial real estate need our help securing the best options for their property and tenants. 

Negotiating lease terms, especially for long-term leases, is the first step to ensuring a truly passive experience for investors. Therefore, we recommend clients review these three elements of their leases carefully to prepare for tenant negotiations:

Talk to your Legacy team about general lease strategies
 
Commercial real estate owners have several options for general lease terms, all of which divvy financial responsibilities between landlord and tenant differently. The four types of commercial lease terms include:
  • A triple net lease (NNN) – The tenant is responsible for rent plus taxes, insurance, and maintenance on the property. 
  • A single net lease – The tenant pays a base rent plus utilities and a portion of taxes, while the landlord covers maintenance and other property expenses.
  • The modified gross lease – A lease agreement where shared responsibility of taxes, maintenance, and other property expenses is negotiated upfront, which creates a more stable rental expense for tenants. 
  • The gross lease – A rental price based on the square footage of a facility, with all expenses included.
Each of these lease terms has its pros and cons for both tenants and landlords. While landlords often favor a tripe-net lease, it may not be the best for certain business types or for certain objectives. Talk to your Legacy asset management team to determine the best lease option before you negotiate with potential tenants. 
 
Be strategic with lease terms and break clauses 
 
Commercial property owners should be flexible and strategically plan lease term options to better attract their ideal tenants. A long-term lease is not always the best strategy for properties, even if this is what landlords generally lean toward. For example, a commercial building in a tech-focused urban area or industrial park may want to offer short-term leases in order to attract more startups and high-growth companies. 
 
Landlords should also pay attention to break clauses in long-term leases to ensure they have a suitable exit strategy if needed. Break clauses can also help attract mid-size companies that may need more flexible options in the future but are eager to find a long-term lease. 
 
Set clear maintenance expectations
 
In triple net leases, setting clear maintenance expectations is essential to ensuring your property retains its value over time and will work to your advantage for both passive income and greater returns down the line. While a triple-net lease creates a more hassle-free experience for investors, it does put the maintenance of your property in the hands of the tenant. Therefore, being explicit about maintenance and upkeep expectations is essential to a favorable tenant relationship. 
 
Legacy Commercial Group offers asset management services that can help you create landlord-favorable lease agreements that work for your tenants and your long-term investment strategy. To learn more about the best way to handle lease negotiations, contact us to talk to an advisor.