I review commercial leases for a living. I’ve put together some ideas for tenants when negotiating their lease.
It covers things like personal guarantees, force majeure clauses and rent increases. 

EDIT: avoiding the self-promotion guillotine and just text-posting below, any links have been removed:

—————

**4 negotiating tips for small businesses and tenants leasing commercial space**

Welcome to 2022; it’s officially a post-pandemic world and the way commercial real estate leases work has changed for many. Retail and office tenants especially have gained some much needed bargaining power over landlords that didn’t exist two years ago.

Disclaimer: Nothing on this post is intended to be construed as legal, financial, investment or relationship advice.

As many small businesses and individuals look for lease space for their business, or consider renewing their existing lease, we are going to explain four negotiating tips tenants should know before they sign a commercial lease.

**#1 - The Personal Lease Guarantee**

Landlords LOVE the lease guarantee; usually a simple 1-pager slipped in at the end of a lease contract, it specifies that the tenant or another “credit-worthy” person will be promising to pay the rent, in the event your business cannot. Sounds simple enough, right? In cases where a prospective tenant’s business has less than two years of operating history, a lease guarantee is often included by default, whether it’s actually a reasonable request or not.

Did you know that personal lease guarantees are negotiable?

That’s right. While a landlord is out to protect their interests, as they should, tenants have options when it comes to personal lease guarantees; it’s not a binary “yes/no” detail. In the event a landlord really wants a personal guarantee, here are some negotiating “counters” to bring to the table as a tenant:

—Providing more proof of the businesses ability to secure the lease, which can be in the form of bank statements, secured future order receipts or other documentation

—Increasing the security deposit: If a tenant has the funds available, sometimes a landlord will accept a security deposit of 3-6 months rent, in lieu of a personal guarantee

—Early release of guarantee: In the event a landlord still requires a personal guarantee, as a tenant you can ask for it to be put down in writing that it will only be for the first year, or two years, and will then be removed, once you’ve shown a good track record of the ability to pay rent on time

**#2 - Rent Increases**

We won’t go into the difference between different lease types here (modified gross, full service, etc), but every tenant should look very closely at any increases in rent they will pay over the life of their lease.

Many tenants AND landlords really took a haircut during the dark winter of covid, and are trying to make up for losses, each in their own way

For tenants, rent increase = bad. The standard old way of handling rent increases has always been to use a straight percentage increase each year of the lease, like 3%, or tie the percentage to the CPI (consumer price index).

But what about the fact that many commercial lease spaces, especially those retail and office ones, have sat vacant for the last year or two? What about inflation? How does all this affect what a tenant should ask for when it comes to rent increases?

The short, one-size-fits-all answer here is, tenants should look for reasonable increases that won’t put their business at risk. For many tenants, this looks like negotiating for stepped increases, instead of “straight-line” increases.

**#3 - Late Payment Default**

Most commercial leases include a clause, or even an entire section, related to what happens if the tenant doesn’t pay rent on time.
Landlords on the 2nd day of the month

Usually, if the rent is not paid by the 3rd or sometimes 5th day of any given month, then the tenant is all of the sudden in (((default))). There is typically a window of a few days after that when the tenant can “remedy” their default, but the landlord has rights; when a tenant enters into default, in addition to large late payment fees, commercial lease evictions happen much more swiftly than residential house leases.

Obviously the best way to avoid all this as a tenant is to pay rent on time. But things happen. Seasonal sales dip below expectations, personal emergencies occur. Any number of things can affect on-time rent payments.

Ways to further protect yourself as a tenant in the original lease terms are:

—Increase the “window to default” (if it’s 3 days, ask for 7, or better yet, 30)

—Make late payments attractive to the landlord, but reasonable to the tenant (maybe 5% for the first one, then 10% for subsequent late payments)

—Add a provision that allows the tenant to be late, up to a certain number of days, a few times a year, without penalty

**#4 - Force Majeure**

We see “force majeure clauses” in about half of the leases we review. The language gives the parties certain flexibility when an “event or effect that cannot be reasonably anticipated or controlled” takes place.

The staples here have always included “acts of God” like hurricanes, earthquakes, war, etc. Some good attorneys have started to also include “pandemic” or biological events in this clause for their leases.

As a tenant, you should also look for, or ask to be added, something similar to the following:

“…any federal, state or local government law, ordinance or order, which would materially affect tenant’s ability to operate it’s business…”

We don’t know what the next big thing is going to be, and as a tenant, having broad flexibility to forego rent payments for a time, or even exit the lease entirely, due to some unforeseen circumstance is a great way to protect yourself.
[{"id": "i0o6ned", "text": "This sub is not a great place for you to promote your blog.\n\nAn increased *cash* security deposit doesn't do much for a landlord in case the tenant entity goes bankrupt. The cash deposit is an asset of the tenant and will be frozen by the bankruptcy.\n\nThere's no reason why prior vacancy should affect rent rates going forward unless the vacancy was due to the landlord asking for above market rent.\n\nThe tenant is responsible for getting all the permits required by their business and following all applicable laws. There is no reason that the landlord should bear the risk that a change in the law could materially affect the tenant's business. Drafting a lease clause like that is very dangerous if the intent is to cover a situation like COVID but not to cover a situation the tenant's industry is targeted but not other industries which could potentially make use of similar space.", "replies": [{"id": "i0odmri", "text": "I don\u2019t want blog subscribers, so I\u2019ve edited to just text and no links. \n\nI get your points; they\u2019re solid *from the landlord perspective*.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i0okcwh", "text": "Neat. One thing that new tenants often do not consider is options to renew. This is more for retail tenants on short term leases. The lease does not go month to month upon expiration, you are in holdover, and holdover clauses could also be something to negotiate. The holdover period is when the landlord charges 150-200% the normal lease rate to get the tenant to leave. So tenants are in for a rude awakening if they did not properly exercise their options or had no options and assumed the lease would automatically renew.", "replies": [{"id": "i0oltdb", "text": "Great addition! Renewals and options can be a minefield.", "replies": [], "depth": 2}, {"id": "i0run3t", "text": "i feel like most landlords do not evaluate options correctly either.  This is one of the best places to add value to a deal in negotiations IMO no matter what side you are on.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i0okkjd", "text": "You should include some notes on casualty provisions.", "replies": [], "depth": 1}, {"id": "i0ow9ub", "text": "A sophisticated Landlord would not even consider #3 or #4.  These are \"wish list\" items and  not realistic unless you have a very desperate landlord.  #1 and #2 are just part of the typical economic negotiation.  Rent, Credit, Term, TI allowance, etc.", "replies": [{"id": "i0oxkxp", "text": "Agree somewhat, but across the entire spectrum, it\u2019s not unreasonable for a tenant to ask for in certain cases. A small retail landlord in a tertiary market doesn\u2019t have the same expectations as a prime corner owner in a cbd. I\u2019ve seen that exact force majeure clause make it into more than a few leases (not arguing whether the average landlord would agree to it, only pointing out it *can* be asked for)", "replies": [{"id": "i0p1tnl", "text": "Fine to ask.  I'd just say keep your expectations \"realistic.\"   You can turn off a landlord in even a moderate environment by \"asking for the world.\"  Remember, the landlord doesn't need to lease you the space.   Best deals are \"Win-Win.\"", "replies": [], "depth": 3}], "depth": 2}, {"id": "i0qoaot", "text": "As a landlord I negotiate on #3 all the time. Usually extend the days from 5 to 10 and sometimes get one free one per year or one free one per term.", "replies": [], "depth": 2}, {"id": "i0r5dng", "text": "What? You aren\u2019t going to get a national tenant without either of those things (#3 and #4).", "replies": [], "depth": 2}], "depth": 1}, {"id": "i0r91nk", "text": "Thanks for sharing. Most of the content on this sub is from the property owner's perspective. Always good for market participants to see things from alternative perspectives.", "replies": [], "depth": 1}, {"id": "i13imko", "text": "Curious what course of action we have if any. We have rented office space for 12 years and never paid late. Our lease came up for renewal and we asked for a quote for 1,2 and 3 year leases. Our business is doing great but with the economy the way it is we were wanting a 1 year lease. The leasing rep gave us a quote for the 1, 2 and 3 years. We talked it over and decided that we'd settle on a 1 year for now. He comes back and says they won't do a 1 year and it now must be 3 years.  They won't even do an 18 month out clause. Thru basically  said if you don't like it go somewhere  else as we'll have no problem renting your space out to someone else. I'm pretty sure there is nothing we can come back with. I know we can do a month to month which is a 150% increase over our current rent. Not really an option. I mean we've been great tenants and it feels like a bit of a FU. Too bad so sad.", "replies": [{"id": "i13spgt", "text": "Without knowing anything about your original terms\u2026 it doesn\u2019t sound like you have much weight to throw around contractually. Makes it hard to gauge what the landlord cares about most when you have an agent go between. \n\nYou could make a personal appeal to the landlord if they are local, or present a best and final on what lease terms you\u2019d accept. Also have to keep in mind what the cost to move locations will be to you.", "replies": [{"id": "i15pt9t", "text": "Yeah I don't think we have much recourse. We'd probably just put everything in storage and look for another office when it's more of a renters market. We can work from our homes without  much issue. We are a small IT MSP and do need an office but I think we can work around that for now.", "replies": [{"id": "i15yyi2", "text": "And **this** is why office landlords are in bigger trouble than their brokers will admit.", "replies": [{"id": "i160yfc", "text": "The fact that they are not giving us a 1 year or even an out clause bothers me. We just want a 1 year right now. Does not mean we won't sign a longer lease at the end but they are just being a-holes to a good tenant. I get it they can do what ever they want but still.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ickejul", "text": "Heya, so how'd it go with your lease renewal?\n\nWe are in a similar position with our retail business. We've leased a 1200 SF for three years with no late/missed payments.\n\nOur landlord via property manager offered us a 3-year renewal at 0% increase the first year and 3% increases on the 2nd and 3rd years. They were definitely not interested in shorter periods like month-to-month or one years. When we asked if there's anything on the table for a 5-year, they stated they have no interest in longer terms either.", "replies": [{"id": "ickk8u6", "text": "It's a leasers market here and could not find anything with the same sq ft and price. We ended up going with the 3 year and they painted, cleaned the carpet and swapped out our florescent lights for led lights so we did get a little something out of it. small increase each year which is normal obviously.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]