TAG completes dozens of successful negotiations every year (over $30,000,000 worth of transactions in the last 2 years!) because we know the market better than anyone else and we understand how to work with others. Here are some tips you can use with your negotiations:
Information: information is the key to any successful negotiation. The more you have, the better position you will be in to achieve your goals.
Leverage: gaining leverage allows you easier access to achieve your goals in the negotiation. Often times, leverage can be found by gathering more information.
Fairness: you never want to take every penny off the table. Leave a little something for your opposition in a good faith showing of being fair. You may end up crossing paths again and you want to be able to pick up where you left off, which is successfully completing a negotiation.
Maintain calm demeanor: it is very important to never raise your voice. The purpose of yelling and screaming is to get someone to listen more closely, but it actually has the opposite effect. If you raise your voice, people will stop listening and progress will be halted.
Understand your adversary’ motivations: by understanding what your opponent’ goals are makes the accomplishing of your goals that much easier. Often times, the two sides might have varying definitions of success, making attainment a far greater possibility.
Understand your motivations: it is important to not lose sight of what you set out to accomplish. Many factors can play a role in working against you like ego, spite, saving face, or revenge. By remembering the purpose of the negotiation it can bring your focus back on what you are seeking to achieve and not wasting time and energy on things that distract you from your purpose.
Never make a threat you are not willing to keep: you will lose tremendous credibility and leverage by not following through on your threats. If you need to make a threat, you have to be willing to act on it should your adversary not comply with your demands.
Listen: this can be a tremendously effective negotiation tool. By asking questions and listening, you can gain great insight as to your challenger’ motivations, you can gain valuable information that will increase your leverage, or you may just learn something personal that you connect over. Either way, we have two ears and one mouth- use them in the same proportion.
Know your BATNA: this is your Best Alternative to No Agreement. Just because you are in negations does not mean you have to accept something that does not make sense. Having an alternative that you can fall back on provides tremendous leverage and ensures you won’t do a deal just to get something done.
Develop trust: everyone always prefers to work with people they can trust. This holds true with people you are negotiating against. It bodes well for future successes and better results in your negotiations.
What’s in your lease and what should you be looking for? While TAG is here to help you fully understand the terms, we believe an educated client is a happy client. Here are a few basics items to look for and be aware of:
Business terms: Double check that the business terms agreed to in Letter of Intent are the same as in the lease document.
Sublease clause: Reasonable consent should not be withheld by landlord. Landlord will ask for 100% of profits. A 50/50 split is fair. Seek to minimize notice to landlord and response time from landlord. Consent shall not be necessary for purchase, sale, or merger.
Hold-over clause: Landlord will ask for 200% of rent. However, 150% is fair and market.
Renewal Clause: Landlord may ask for automatic renewal if no notice. This is not acceptable. It’s nice to have rights to space. Negotiate rate when possible as it will still be negotiable at that time.
Work letter: This should be studied closely to make sure everything matches up to what landlord said he was going to deliver. If there is an allowance, base building items should be taken care of by landlord. If landlord is constructing, make sure he is liable if he doesn’t deliver on time.
Right to Terminate: Can be a great source of leverage to restructure lease regardless of how market has changed since execution.
Surrender of Premises: Space shall be returned in broom clean condition, nothing more. Landlord may ask for space to be returned to white box. That is unacceptable.
Taxes & Operating Expenses: It’s important to make sure capital improvements are not passed along to tenants through operating expenses. If gross lease, should be a Base Year.
Insurance requirement: Have a qualified insurance broker review coverage requirements.
Damage or Destruction by Casualty: Seek to minimize time in which lease can be terminated, and maximize the remedies available to tenant.
Bonus: It’s very important to have an experienced real estate attorney review the legal terms of the lease. Also, it can be a great advantage to have an experienced commercial real estate broker negotiate the business terms of the lease. They are paid by the landlord through a fee that already exists.