Tips for Property Owners to Negotiate a Lease on Manufacturing Real Estate
As a commercial property owner, you have a slight upper hand over a tenant who wants to lease your space. It’s a supply and demand issue; the prospective tenant needs somewhere to operate its business, and you have the real estate to meet that demand.
However, a misstep during lease negotiations and that advantage you held could be rendered moot. Whether you’re dealing with a clothing retailer, restaurant or a manufacturing real estate tenant it’s important to look out for any part of the lease that could swing the agreement out of your favor.
There is no reason this has to happen to you as a property owner. Here are a few tips to consider when you negotiate your next commercial property lease with a manufacturing real estate tenant or any other industry, given from years of experience negotiating commercial real estate in Frederick, MD.
Thoroughly review the tenant’s financial records.
Sure, this seems like common sense. You want to make sure whoever lease your property to is in good financial standing to they are able to pay you when their rent is due. It’s especially important, however, to take a closer look when working with a manufacturing real estate tenant. There’s a good chance that their cash flow is dependent on how much of what they manufacture they are selling.
Are there a lot of ebbs and flows in their financial statements? Do they consistently generate a profit throughout the year or are there “big months” when most of their revenue is generated? If you know this information before you get to the negotiating table, you can set up the terms so you’re always getting your payment regardless of how well a manufacturer is doing at any point of the year.
Be clear that the premises come ‘as is.’
Or list exactly what repairs you will make before the tenant takes the space. When dealing with a manufacturing real estate tenant, or any tenant for that matter, there should be a stipulation in the lease explaining the occupant will accept the premises at it comes. Or there should be a mutual agreement between you and the tenant about how much you’re responsible for before the lease begins. This part of the negotiation is important because it will save you from the tenant coming to you with complaints later, which you could be on the hook paying for without that, “as is” stipulation in the lease.
Work toward a long-term lease if possible.
Finding the right tenant can be difficult. Once you finally do, ideally, you want them to stick around for a while. Not only will it save you the time of having to search for a new tenant, but you’ll also avoid the expense of re-leasing your property and you have peace of mind knowing you’ll have a consistent revenue stream from the rental for as many years as you and the tenant agree to.
Since a long-term lease works more in favor for you than it does for the tenant, you might have to make some concessions in order for them to agree to a long-term commitment. It’s worth it the long run though because that space will be occupied for a long time. The type of tenant leasing the space could dictate how long they’ll want to stay there, but a manufacturing real estate tenant is a decent bet to stick around because of all of the equipment and parts they’ll most likely have on the premises.
Do your homework.
It’s likely that you are not the only property your prospective tenant will be looking at. With that in mind, do a little research, too. When a prospect reaches out to you about leasing your space, take a look at similar properties in the area and see how much they are charging for rent. This is not to say that you have to lowball your price or mirror anyone else’s, but this research will put you in a place of strength when negotiating terms because you’ll be within the ballpark of other commercial properties in your area.
Include protective provisions.
In a perfect world, your tenant would pay on time every month for the life of the lease you agreed upon. That is not always the case of course, so when it comes time to negotiate a lease, there’s nothing wrong with asking for some insurance in the case of non-payment. Think about a manufacturing real estate tenant for example; what if their product stops selling and suddenly they are behind on their rent payments?
If you have any reservations about a tenant’s financial strength, ask the tenant for a security deposit before they move in; perhaps one to two months rent. This way, if the tenant defaults on a payment, you can put the security deposit towards that month and the tenant would then have to pay back the deposit. Another stipulation to discuss up front is in the event a tenant has to file for bankruptcy.
Yes, as a property owner, you are holding most of the cards during a lease negotiation. That does not mean you will win every hand. If you bring these tips to the table however, there’s a good chance you’ll feel good about the lease you agree to once the papers have been signed.
There is an abundance of content available online dedicated to educating tenants on commercial lease negotiations; there is somewhat less content around how property owners should negotiate a lease. But, for property owners and tenants, negotiating a lease is incredibly important.
If you want to ensure success, get in touch with us. We have the years of experience negotiating manufacturing commercial real estate in Frederick, MD to facilitate a winning situation for you and your tenants.