Commercial leases can also be negotiated.
A popular joke in Korea these days is the phrase “Lord over the landlord”. The relationship between landlords and tenants has long been a classic power struggle, and everyone has experienced the feeling of being dwarfed by a landlord at one point or another. Most people are hesitant to negotiate with a landlord because they think they’re being taken advantage of. In particular, when looking for a space for their business, many people sign the commercial lease agreement presented by the landlord without any negotiation.
However, just as there is no such thing as a free lunch, a commercial lease is also highly negotiable depending on the circumstances. Technically, a tenant is like a “guest” to a landlord, because they’re paying to use the space you’re providing. And if you lose a tenant, there’s no telling how long it will be before you get the next one. That’s why most landlords will try to negotiate the lease, within reason, so they don’t lose out on a new tenant.
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As a tenant, here are some important issues to consider when negotiating a lease. First, you should find out if you can get a free rent period. When a shop has a new tenant, there are often small and large construction works to change the structure and interior of the shop, especially if the business of the previous tenant and the new tenant are different. During the construction period, you usually cannot do business, and if you cannot do business, you cannot generate income, so you can ask the landlord for a free rent period for the first few months to minimize expenses. We once had a client who wanted to open a new restaurant, and while negotiating a lease for him, we realized that the space he wanted to occupy had not been rented for the past two years, so we emphasized this point in our negotiations and were able to obtain six months of free rent.
Common Area Maintenance (CAM) is another item to keep an eye on. CAM refers to the maintenance of areas that are shared by all tenants, such as elevators and hallways. CAM is typically shared by all tenants, and each tenant’s share of CAM is determined by the percentage of the building that their store occupies. It’s important to note that this can make a big difference depending on whether you count the entire building as the total square footage of the building, or just the square footage that you lease out to tenants within the building. For example, let’s assume that tenant Kim’s leased shop is 500 square feet, the total area of the building in which Kim’s shop is located is 5000 square feet, and the area leased to tenants is 4000 square feet. If the total area of the building is used to calculate CAM, then Kim’s share of CAM is 10% of the total, but if the leased area is used, then Kim’s share increases to 12.5%.
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Exclusive rights clauses are also something to keep an eye out for in your negotiations. If the store you’re leasing is in a mall, this clause requires that no other tenants in the same business as yours be allowed in the mall. For example, if you open a beauty supply store in a mall with 20 stores, and another beauty supply store opens in the same mall, you’re going to lose sales.
You can also try to negotiate the condition of the store you’re leasing. Typically, lease agreements are written on an “as-is” basis, but before you sign the lease, you can have a professional inspect a number of things and ask for repairs if they are absolutely necessary. After the lease starts, the tenant is usually responsible for repairing/maintaining the HVAC (heating, ventilation, and air conditioning) system, but if it’s not working properly before you sign the lease, you can ask the landlord to fix it. And if there are any structures in the store that violate the Americans with Disabilities Act (ADA), you can ask for them to be removed.
There are many other lease provisions that you should try to negotiate as a tenant. Many landlords hire attorneys to draft and negotiate leases, so if you’re looking to lease a new storefront as a tenant, I highly recommend getting advice from a commercial lawyer who is experienced in negotiating leases. If you have any further questions about the content of the column, or if there is a piece of law you would like our readers to know about, please don’t hesitate to contact us at 마시고mail@songlawfirm.com. I will incorporate them into my next column.