Negotiating: Don’t Overpay For Your Retail Space

Business.comMay 26, 2016

Pre-Payment of Rent

 

Pre-payment of rent is something I have put last as it simply isn’t practical for most businesses. While it is great in theory, I am willing to bet few (if any) people reading this article have the ability to do so. However, if you are able, this is a great way to reduce the overall cost of the lease.

 

As it states, you simply pre-pay the lease. You can make arrangements to pay all, or some of, the lease in advance in exchange for a lower rate. The benefit is obviously the lower rate, but is there a downside? Absolutely.

 

Let’s assume for a minute that you enter into an agreement with a deadbeat landlord. Paying them up front takes away your leverage in the event of a breach. Many states allow you to withhold rent in certain circumstances but if you have already paid, then there is nothing you can withhold. If the landlord stops paying for trash collection, fails to pay the property tax, etc., you could be harmed as a result with a lawsuit being your only form of recourse.

 

On the flip side, some landlords do not accept pre-payments.

 

“Landlords are reluctant to accept lease pre-payment,” says Alex Cohen from CORE, the leading real estate broker firm in New York City. “Generally, they prefer a security deposit that remains in place for the entire duration of the lease, though possibly with a burn-down over time if there is no default and certain thresholds are achieved.”

 

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