Suppose you are the owner of a growing enterprise, and you have decided that your business is in need of expansion. You then determine that the logical next step is to establish a physical presence: maybe a storefront, maybe a warehouse, maybe office space. In order to do this, a prudent business owner is going to hire a commercial real estate agent to represent their interests. But there are three things you need to know before signing a lease agreement.
1. Commercial real estate agents are middlemen
Even if you handpicked an agent who is supposed to represent your interests, they are not always looking to get you the best deal. Often, they are trying to get you to settle. This means, if you see something you don’t like in the lease agreement, they may try to say that it is standard, which might be true, but it doesn’t mean that it isn’t subject to negotiation.
2. Commercial real estate agents usually operate within territories
Since agents typically operate in regions, it means that they will have a high level of familiarity with the general area. This also means that they will have a high familiarity with the landlords that own the properties you are trying to lease. If the agent has had years of experience in a given region, they will naturally develop relationships, maybe even friendships, with the property owners. This can be both good and bad. It might be a good thing because your agent has already established a working relationship with the landlord, which can sometimes work to your advantage. However, it can be also bad because your agent might be working more on behalf of the landlord instead of you. So, unfortunately, that can be a conflict of interest.
3. Commercial real estate agents might include non-standard lease terms
Your agent might take it upon themselves to include non-standard items in the lease agreement. For example, do you know what happens when your commercial lease terminates? Normally, if you decide that you like your current location, you can renew for one year. So, one-year renewals are the norm. However, your agent, not the landlord, might have written in that renewals are for a term of two years. In this case, your agent makes more money, and also, the landlord gets more money because you have now committed to a longer lease term. This is because you assumed it was a standard part of the lease. But it wasn’t. Your trusty, commercial real estate agent wrote it in for their own benefit.
The best way to protect yourself from unusual lease terms is to speak to someone with experience with commercial leases. In addition to your agent's advice, try to get a second opinion from other tenants and/or any knowledgeable advisor.
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