Leasing office space can put a big dent in your pocketbook, especially if you are a growing business struggling to relocate to a larger space on a shoestring budget.
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With higher rent payments hanging over your head, the cost of retrofitting the space can be the straw that breaks the camel's back. But if you play your cards right, you might be able to convince your landlord to cover all or part of the buildout for you. Here's how . . .
No matter what the landlord says, buildout costs are always a point of negotiation. Although your skill as a negotiator will be a factor, the key to convincing the landlord to cough up cash for the buildout is to present in a way that is beneficial for both parties. In other words, you have to convince the landlord that he is getting something in return for his investment in the leased space.
If you plan to inhabit the space for an extended period of time, you may be able to use a longer lease as leverage in your negotiation. Commercial space doesn't turn over nearly as quickly as residential space, so landlords are anxious to lock new tenants into the longest term possible. The guarantee of a long-term income stream can provide the financial incentive the landlord needs to grant your request.
The majority of lease negotiations result in a "meet me halfway" agreement on buildouts. Landlords are often more willing to invest in the space if they see that you are also willing to cover the cost of some of the improvements yourself. This can be especially beneficial to the landlord if improvements will last far beyond the lease term, essentially increasing the value of their asset. However, you need to be careful about spending too much on long term improvements if you don't plan on inhabiting the space for very long.
Another effective strategy in convincing a landlord to pay for office buildouts is to break the improvements down into bite-sized segments. A piecemeal approach makes it easier for the landlord to pick and choose the improvements he is willing to pay for. It also makes it easier to negotiate a plan for staged improvements that can be written into the lease over a period of months or years.
A leased space should meet current building codes. Even so, it's not that unusual for leased space to be out of compliance and potentially hazardous for employees and clients. Compliance-related improvements aren't the tenants responsibility and shouldn't be part of your negotiations. They should be covered in full by the landlord.
Time Loan for Buildout Costs
If your landlord refuses to pay for the full amount of the office buildout, there is yet another option worth exploring. Under the right circumstances, landlords may be willing to front the cost of the buildout and be repaid over time through higher lease payments or other arrangement. If you can negotiate bridge funding for little or no interest, you still realize a financial advantage.