Long term leases, if done properly are made with options to be broken. Whether the landlord is looking to get the current tenant out in order to charge more to a new tenant or more likely, the tenant is looking to get out to find the right sized space, there are many times in commercial real estate when the usefulness of the lease has run its course before the term has ended. As the tenant, there are measures that can be taken to protect yourself before signing the lease so that during the lease term you maintain some flexibility.
Show the lease to your attorney
Be sure that someone with a legally trained eye gets a look at your lease before signing it. There are often a vast array of subtleties within the lease that can lock you in unnecessarily. These problems can be avoided with some foresight and by having your attorney dive into the details before making such a large decision.
Flexible termination clause
Through the negotiation process, find a way to work an exit strategy into the lease. One of the most overlooked and yet critical aspects of negotiating a lease is making sure there is a termination option. This is especially critical for leases longer than five years. A right to terminate will not be offered voluntarily by your landlord, rather, it is something your broker will need to establish before singing.
During the Lease
Keep record of all issues
Throughout the life of the lease, take a note of every problem that comes up, no matter how small or trivial it may seem. For instance, if a light bulb goes out, and it took maintenance two days to fix it, take record of this as it could certainly be used for leverage. There is no need to go out of your way to search for problems, but having a summary of anything that your landlord has done (or not done) to make the space uncomfortable will give you leverage if there is ever a need to get out of your lease.
One way to mitigate the rental liability is to sublease your office to another tenant. With leases signed in the last five years, the rates those tenants are paying is often times lower than current market rates, making a sublease much more attractive to a prospective subtenant. Depending on the situation, there is even the possibility of making some money on this.
Have your broker approach the landlord
A broker will always have a greater understanding of how to build leverage. A broker can really negotiate from a strong point of leverage when they have a strong back up plan or BATNA (Best Alternative to No Agreement). For instance; there could be other tenants in the building that have been wanting to expand their space or move from one office to another in the building. The broker will be able to use this as leverage to break the lease smoothly.
Should all else fail, there is the option of trying to back-end load the lease. What this means is that the broker would negotiate a reduced rate for a certain period of time (for example a year), which would then be added to the following year or later in the lease. This is not an ideal option for the landlord as it will be less revenue now on a financially at risk tenant. However, should you happen to have a strong broker on your side, this can certainly be negotiated.
The business landscape is competitive. The line between ethical and unethical can often become blurred. There is a big discrepancy and ultimately a determining factor in reputation, of how one sees the difference between the two. With the rate new businesses and competitors are emerging, there is a rising concern from established companies that they must do whatever they need to in order to sustain their place in the market. Sometimes, though not always, this leads to a one-sided result that is achieved by not taking the high road or considering the repercussions.
Playing fair does not make you weak. There are rules and ethics in the game of business that allow anyone to have an equal shot. Keeping these rules in mind and respecting a level playing field will build respect, not only for how others see you, but if others want to do business with you.
This is the most important aspect of conducting fair dealings. Every other benefit of fair play derives from the fact that positive business interactions will garner you more respect amongst peers and even competitors. Every negotiation has the possibility of a “Win/Win” scenario. When you work for transparency throughout the process and settle on that solution that is mutually beneficial, both parties come away feeling good about the situation. Over time, word of these continuous positive outcomes will spread and begin to develop into your reputation.
Depending on the industry, drumming up new business can be a painstakingly difficult process that takes weeks, months, even years in some cases. This is why recurring customers/clients are so valuable to any business. Whenever you walk out of a sale and feel like you pulled a fast one on somebody, there will be the short term benefit of acquiring that customer and the long term detriment of never getting them to come back or refer you to other clients. Maintain transparency throughout the process and reap the long term benefits of a lifetime client.
Book of Business Expands
Referrals are the lifeblood of most companies. These referrals increase tenfold with each positive negotiation, as word begins to spread that you listen well and react accordingly to the other side’ needs. By making a habit of understanding what both sides of the table are looking for, your network will begin to expand as those that you work with send new business your way. Effectively communicating to reach a strong compromise in all your work will increase the likelihood that you become the go-to for anyone referring business in your industry.
Too often, negotiations and business dealings end with one side feeling cheated or misled. This does not have to be the case. In fact, in order to succeed in the long run, honest and reciprocal negotiations should be the ultimate goal. Unfortunately, egos and emotions get in the way and decision makers do everything within their power to not wind up on the losing side of the negotiation table. By proceeding under the ideal that both sides can be the winning side, you will be better equipped to play fair and ensure that nobody feels slighted.
Is your business overcompensating for the key buzzwords in company office space right now? Of course, we are talking about fun and collaborative. In order to impress clients and potential hires, creating a comfortable office space is an obvious goal for any company. However, there needs to be consideration into whether your new ping pong table actually meshes with the culture that is already ingrained in the fabric of the company.
The Game Room
While there is no harm in having a foosball table in office, be wary of turning the workspace into a game room. Everyone is attempting to follow in line with the “fun office space” trend, however many do not hold the same values that a company like Google does. Before buying the hot new toy, ensure that it makes sense for the image you are looking to portray. Avoid making this a priority unless it is harmonious with the clientele and talent you are trying to attract.
Many companies have transitioned to the collaborative work space with an open concept. The idea surrounding this design is to create an environment that invites team effort into projects. If this suits the business that you are in, then it is a great idea. However, some business owners have found that it is more functional to have private areas where employees can engage in their individual work. Maybe for you it is a combination of both. The key here is to create a space that gives the most efficient utility, not just follow the latest trend.
In my experience, culture and a strong work environment derive from leadership and not gadgets. While it is important to attract talent, you want the right talent that is working, not playing. When the design of your space is all said and done, remember to keep a balance between working hard and playing hard. Any efforts should be about building a productive workforce.
Comrade Web Agency was seeking a loft space in River West. TAG located a great space and then negotiated a tremendously favorable deal. TAG was able to drop their rate 22% from the original asking, and added 32% additional tenant improvement allowance from the initial offer. Likewise, free rent increase by 50% over the initial offer from the landlord.
Click the image below or click HERE to watch Comrade Web Agency’s full TAG Testimonial!
The City of Chicago is experiencing a dramatic change in the availability of commercial real estate. The landscape is in flux due to the improving U.S. economy. Real estate typically lags the economy which leads to a very intriguing cycle of office space availability. Because of the interconnected nature of all of these issues, many of these trends could reverse in just a couple of years. However, for the foreseeable future, businesses and landlords can expect low availability due to the following issues.
Lack of New Buildings/Class C Space
One of the key indicators of a tightening of available space is that there are no new buildings coming online in the city anytime soon. Alongside this, Class C Space, which are considered buildings at rents below the average for a particular area, are being converted to hotels and residential spaces. As these two factors proceed concurrently, the supply of office space will continue to decrease.
Many suburban companies are moving into offices downtown in order to get closer to their workforce. Companies already at home in the city are actively expanding due to a recovering economy. Most companies are feeling more confident about their 5 and 10 year outlooks, which allows for growth or migration to the big city. Both of these forces at work combine to increase the demand for additional office space in Chicago.
Increasing Net Absorption Rates
Due to the previous two factors, over the next few years, net absorption rates, which measure the change of leased and occupied space, should continue to increase. This is especially considering there are no new buildings scheduled to open in the next 1.5-2 years. During this time, companies will continue to grow and end up bidding over the same spaces, therefore continuing the upward pressure on rental rates. As net absorption rates climb, the supply of office space continues to shrink.
Because real estate lags behind economic trends, as landlords and developers recognize this upward pressure on rental rates, they will then start building more properties to offset this fresh demand and lack of supply. However, as is the case with every cycle, the economy will eventually turn, the developers will have over built and we will resort back to increasing vacancy rates and reducing rental rates. Striking this balance is difficult, but proficient real estate agents must manage these cycles to find the best space for their client.