Despite businesses becoming increasingly virtual, many still need brick-and-mortar space. In most cases, that involves leasing. A lease is often among the most important commitments a business owner will make. Yet many tenants focus on finding the right location or the lowest rent but pay little attention to negotiating terms beyond rent. That can be an expensive and long-lasting mistake.

Planning for the negotiation process before discussions begin is essential to securing favorable terms and managing risk. Otherwise, it is easy for tenants to get swept up in the momentum of the transaction and sign a lease that does not protect their interests.

When negotiating a new lease or a renewal, know where your leverage lies. The landlord wants occupancy, brokers want commissions, and nobody gets paid until the deal closes. That creates a powerful incentive to get a deal done. This drive to close the deal is built into the lease negotiating process.

Keep the leverage

Once the tenant signs the lease, the tenant’s leverage disappears. A tenant must get everything they need and want – parking, signage approval, etc. – spelled out in writing before signing.

Too often tenants rush into a lease thinking that the landlord will revisit terms after signing. They want the space now and the inertia of the deal whisks them along in the process. Once the lease is executed, however, the landlord may have little reason to revisit unresolved issues. The result can be years of operating under a lease the tenant wishes it had negotiated more carefully.

Where future landlord approval is required for signage, improvements, or assignment, tenants should consider negotiating a provision preventing the landlord from unreasonably withholding, conditioning or delaying consent.

For many small businesses, the landlord will require the owner’s personal guaranty. A guaranty makes the owner personally liable for the tenant’s obligations under the lease. If the business cannot pay, the landlord can pursue the guarantor personally. As a result, a poorly negotiated lease can jeopardize not only the business, but also its owner.

One example that comes up too often relates to a building’s HVAC system. A tenant signs a lease for a space. They think it is a great deal. But they overlooked the clause stating that they must maintain, repair, or, if needed, replace the HVAC equipment serving the space.

Two weeks into the lease, the old, worn-out AC unit dies. The bill to replace it is $25,000. The tenant is on the hook for the replacement cost. And they’ve likely personally guaranteed it.

I have seen this situation repeatedly. The tenant could have negotiated. They might have asked for a clause stating something like, “If replacement of the HVAC equipment is required, tenant will pay the cost, reduced by 5% for each calendar year in which the equipment has been in service.”

If the landlord would not accept that term, at the least, the tenant could have obtained a professional inspection of the HVAC before signing the lease. Likely, a qualified professional could have told them that the AC unit would soon fail. Then, they could have considered finding an alternate space.

Understand operating costs

Understanding operating costs beyond maintenance is also important. Is the lease triple-net (NNN), a gross lease, or something in between?

In a pure triple-net lease, the tenant pays operating costs in addition to rent. Operating costs typically include the expenses a landlord incurs operating a building, such as insurance, taxes, bookkeeping, roof repair and snow removal.

If there are multiple tenants leasing a building, leases usually prorate operating costs based on square footage.

If there is a bad snow year, taxes go up, or other variable costs increase, the cost to the lessee will increase.

A tenant can negotiate a cap to operating cost increases, but only if they understand it and know it is a negotiable term.

A gross lease means that the rent includes operating costs. Less sophisticated tenants may be better served by a gross lease. That way they know what they are paying and can budget accordingly.

Beyond operating costs and maintenance obligations, tenants may negotiate a wide range of lease terms, including the scope of any personal guaranty, assignment and subletting rights, renewal options and rent escalation provisions. Whatever terms are negotiated, they should be clearly reflected in the signed lease.

Most importantly, tenants should remember that their leverage comes from the ability to walk away. Before signing, make sure the deal is one you can live with for the duration of the lease. Until then, your signature remains your strongest bargaining chip.

Shea Meehan is an attorney and the director of planning at Cornerstone Wealth Strategies, headquartered in Kennewick and servicing clients nationwide.