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In theory, everything! But we all know this is not always the case. From costs and expenses to conditions of rent and termination, before signing that final document, it is vital to note that how much is negotiable is dependent on demand for the location; the landlord’s financial situation; and the potential tenants desirability as an occupant of the premises.
Before entering into negotiations, the following factors should be taken into consideration:
Negotiating is a technique.
According to our commercial litigation lawyers, negotiation is an art, for the skilled and experienced.
A few weeks back, we shared our pick for Top 10 Negotiation Techniques.
For those who missed it, let us break it down for you:
- Research and prepare facts
- Negotiate with the person who has the authority to do something
- Be neutral
- Focus on the positive
- Listen carefully and be attentive
- Stay calm, cool and collected
- If you have to take time out, take it and come back
- Focus on your objectives and the needs of the other party
- Consider alternatives
- Mutually agree on a solution to the problem.
Although these tips can lead to the upper hand in a negotiation, this may not always be as easy for businesses, especially in the competitive Australian market and economy.
As commercial litigation lawyers Sydney, we often engage in negotiations for commercial properties, leasing, purchasing, contracts and any other negotiable arrangements.
One of the most common instances we must use these tactics in, is when it comes to leasing property for new businesses.
In a lease, the following terms and conditions are always included and always negotiable:
- Duration of lease
- Lease renewal options
- Competition of tenancy
- Conditions concerning fixtures and fit outs, repairs and maintenance
- Contract breaches
- Lease termination
And last but certainly not least:
- Costs
What can and should you negotiate?
In theory, everything! But we all know this is not always the case. From costs and expenses to conditions of rent and termination, before signing that final document, it is vital to note that how much is negotiable is dependent on demand for the location; the landlord’s financial situation; and the potential tenants desirability as an occupant of the premises.
Before entering into negotiations, the following factors should be taken into consideration:
THE IDEAL LOCATION
Going back to the principles of economics, a complementary good or business is that with negative cross elasticity of demand in contrast with a substitute good. This means, the demand of one good and an associated good are interrelated.
Important for business, for a start-up or business relocating, the ideal location is that in which a complementary good or service is within close proximity. For instance, an accountant opening near a bank is more likely to succeed; as is the deliberate placement of strawberry jam near peanut butter in a grocery store. If you are considering leasing premises, the following tip is the best we can give: Location! Location! Location!
HIRE A TRUSTED BROKER
Finding a broker is easy. Finding the right broker is the difficult part. However, as a basic rule of thumb, try to avoid using the same broker who:
a) May represent your competitor
b) May represent the potential landlord
In the decision-making process, ensure the broker understands your business; is familiar with your business type; and is well-experienced in the industry.
DETERMINE HOW MUCH YOU CAN AFFORD
As basic business, often the lower price is the more desirable price, so this is often the advertised price. An important initial step should be to determine how much your business can afford, which is mostly calculated as a percentage of total sales less expenses (excluding rent at this point).
So, a landlord may advertise a great deal at a competitive rate per square metre. This then goes on to be multiplied by the number of square metres; on a weekly basis; on a monthly basis; and finally on an annual basis. This rate should be affordable by your current budget at that time.
This then leads us to the most important of these four factors:
HIRE A LAWYER
When you as a tenant and the landlord have reached an agreement and a Letter of Intent has been drafted into a formal lease, the most important consequent step is to hire a commercial lawyer to review, and where possible, negotiate even more. It is vital to seek an attorney who is experienced. Reading between the lines of a contract is crucial. Often in the excitement of a new prospect, this can be overlooked. This is where an experienced commercial lawyer will come into place.
Through knowledge in business and governing laws, an attorney will be able to indicate fair terms of the lease. This is before entering into an agreement and will save costs, avoid future issues and further terms and conditions of an agreement. Engaging an attorney is most desirable as early into the process as possible.
To find out more, contact one of our litigation lawyers Sydney and country - wide at info@prominentlawyers.com.au
The comments in the article are general in nature and should not be relied upon as a substitute for professional advice. Anyone intending to apply the information contained in this newsletter should seek their own professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. This article is issued as a helpful guide to clients and for their private information. Therefore, it should be regarded as confidential and not be made available to any person without our prior approval.
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