As the needs of your business change, the type of commercial space you require will also be affected. If you already have a commercial lease, you’re going to have to buy yourself out, in order to terminate the contract legally.
Here’s what you need to know about negotiating a commercial lease buyout:
Commercial Lease Buyouts and How they Work
When a tenant wants to break a commercial lease, they have the option of paying the landlord an agreed-upon sum of money before the contract expires.
In some cases, the buyout amount is mentioned in the clauses of the lease; in other cases, the buyout amount is negotiated after the tenant’s request.
Compared to other ways of getting out of a commercial lease, negotiating a buyout is a lot more cost-effective. Buyout amounts are usually large, but the landlord has very little bargaining power; they usually end up losing money.
The amount of money a tenant will have to pay depends on the current state of the market. When the rents in the market are higher than what a tenant is paying, a landlord wouldn’t mind losing them.
What Do You Need To Know When Negotiating?
When negotiating a commercial lease buyout, you have to research market rates so you can use them as a reference. Market rental rates will have a heavy influence on the buyout value along with economic standing.
What Does the Agreement Include?
The lease buyout is an official document. It must contain a termination date, the amount of money the tenant will pay and other obligations the tenant needs to fulfill before they vacate the premises.
Calculating the Penalty
The penalty is calculated based on the following:
- The costs associated with finding a new tenant
- The tenant’s remaining lease payments
- Value of tenant improvements
- The unamortized portion of paid commissions
- Lease value compared to market rates
Usually, the agreed-upon value is less than the sum of remaining lease payments—landlords end up incurring losses during a commercial lease buyout.
In a strong economy, the landlord wouldn’t have a hard time finding a new tenant so the current tenant can get away with paying half the amount of the remaining payments. However, in a weak economy, the tenant will have to compensate the landlord for some of their losses; this involves paying the sum of the remaining payments with a bit of a discount.
If you and your landlord are struggling to agree on a buyout value, consider speaking to a commercial real estate agent Macomb County for guidance. Because they understand the landlord and tenant’s perspectives, they can help you come up with a value that both parties agree upon. A real estate agent can also find you a property that is a better fit for your business.
Macomb Commercial Real Estate
Macomb Commercial Real Estate specializes in helping businesses find commercial spaces that suit their needs and are conducive to their operations.