5 Things to Examine In your Lease Agreement


 

So you finally found the space you were dreaming of. Now it is time to work out the details beyond the first year’s rent. Each particular aspect of the lease has its own importance and to ensure the security of the great new spot you are locking down, do not just skim over all the nuances.

Tenant Advisory Group is your advocate when a landlord may be out of bounds with your lease agreement. Bill Himmelstein, founder and CEO of Tenant Advisory Group offers these five topics as ways to protect yourself before you sign on the dotted line.

1) Free Rent
The amount of months that the space is occupied and no rent is paid. Rent is the most obvious factor of the lease and a broker who understands the market is able to maneuver several months of free rent for you. The market standard for long term leases is to receive one month free per each year of the lease. So, if you sign a 6 year lease, then you should be expecting to get 6 free months.

2) Tenant Improvement Allowance
For the tenant who is looking to build out the available space, ensuring that the lease allows you to make those improvements and have them paid for by the landlord is critical. There can be a cash allowance which will go toward hiring a contractor. The amount that is allocated will depend on your financial stability as well as the terms and duration of the lease.

3) Escalation
As landlords are in a constant effort to get the most bang for their buck, you need to be sure that there are clauses protecting you from unreasonable rent increases. Having a yearly increase over the course of the lease or a specific percentage by which rent can rise keeps you from losing control of your budget.

4) Securitization (security deposit)
All landlords will seek some sort of securitization on their leases. When a landlord knows the tenant well or believes that the tenant does not carry much risk, the security deposit becomes reduced. However, if you hold greater risk to your leased space, then it will be important to the landlord to securitize a portion of their out of pocket expenses to ensure that the landlord is protected and comfortable if there are any major issues. This deposit will allow for money to be refunded back or credited towards your rent as long as the tenant is not in default.

5) Termination Option:
The termination option is an extremely valuable piece of the negotiation. Your landlord will not offer this unsolicited. For leases that are longer than five years, it is critical to have termination rights. By negotiating this into the lease, if the rates dip below market value, then you will be able to exercise the right to terminate and move or use it as leverage to reduce your rate. Likewise, if rates have risen above your current levels, a right to terminate can be used to ensure you maintain below market rates.

 

By William Himmelstein

Negotiating A Higher Tenant Improvement Allowance


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A space may be absolutely perfect, but need substantial work to become the perfect space for you. For this, a Tenant Improvement Allowance, number of dollars the landlord is willing to offer per square foot of rentable space, is extremely beneficial.

 

In many of our blogs we’ve discussed the power and necessity of negotiation. You have the power to acquire what you want and more importantly what you need.

 

In big cities there are a plethora of options available. As leverage in attracting potential tenants, landlords may use a Tenant Improvement Allowance. However enticing this may seem, often landlords will not provide the amount of money necessary for a proper build-out.

 

Why would (s)he do this? What can be done to remedy this? Let’ look at a few possibilities.

 

  1. Return on Investment
    • The landlord’ main concern will always be to increase the return on the original investment. Frequently, this value is determined by rental rates in the current market. When a landlord suggests a certain dollar amount it is not arbitrary, but rather based upon the market.
  2. Return of Investment–probability of repayment
    • The landlord may be hesitant if repayment contains any element of uncertainty. Factors affecting this could be inconsistency of business, financial history (credit history), and length of lease.
  3. Tenant History
    • As a tenant, if your operating history is minimal the landlord may be reluctant to increase your improvement allowance. This is due to the high cost of capital had by the landlord, or perhaps no capital at all.
    • If the term you are willing to commit to is too short this deal presents a higher risk by amortizing the costs over a shorter period of time.
  4. Cash resources
    • The landlord can only offer up capital (s)he has access to. To determine this amount, most times, this will be based on an educated guess. The best way to have success is to research the landlord and understand his/her financial wherewithal.

 

Awareness of these concerns will give you the upper hand and ability to remedy the problematic variables. But, how can this be done?

 

  1. Offer to amortize a portion of the allowance
    • This functions as a structured method to formally repay the allowance, thereby increasing the return of and return on investment. One factor to consider is that, as a tenant, this will increase the occupancy cost. However, it offers a reduction of the cost upfront.
  2. Sign a long-term lease
    • The longer your lease is the more your landlord is likely to offer. A long-term lease offers consistency and more-or-less secures the return of investment.
  3. Evaluate various credit enhancement options
    • Lease guarantee–the more backing you have the more confident the landlord will feel about doling out the upfront cash.
    • Letter of credit–this is a document pledged by the bank or other financial institution, that should the tenant fail to pay they will assume the cost owed. Consider, however, that should you request this backing the financial institution may require you to maintain a minimum balance for the amount they are backing.
  4. Free Rent
    • The tenant can offer to receive TI in the form of free rent. (S)he can ask her/his broker to accept the commission at a later date.
  5. Financial Proof
    • Providing financial information is a definite plus. Additionally, an SBA 7a loan from a bank can assist in subsidizing the tenant improvements.

 

These are just a few items to considering before requesting a tenant improvement allowance. For more information on improvement allowance and securing a lease, check out our blog:The Definitive Guide to Finding Your Perfect Office Lease.

The Body Language Basics For Successful Business


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Is your body language impacting your success? Absolutely. Here are the Body Language Basics.

A good portion of interpretation of what has been said is based on tone of voice and largely body language. Albert Mehrabin, Guru of nonverbal communication, said ” 55% impact of our message is body language, 38% is tone, and 7% is delivered by words”. Do not let your body betray you.

The government uses a variety of lie detection techniques including voice diagnostics, blinking rapidity, and body positioning (aka body language) to determine truthfulness. While your clients, business contacts, and colleagues are unlikely to come equipped with this machinery, the way you conduct yourself physically is very important.

 

First and foremost consider your face and hands.

 

Face

A genuine smile starts at the eyes and continues down to the mouth. If you don’t have a thousand watt smile or are not keen on a big grin try out a variation on the smising (smiling with your eyes) technique coined by Tyra Banks. Think of something that makes you happy and flash those pearly whites. Now close your mouth and you’ve completed the smise.

Remember to relax your jaw. A flexed jaw is a primary indicator of tension.

Hands

Relaxation comes from a feeling of groundedness. Why are drinks always provided at business meetings and networking events? People feel a sense of security when they have something to hold onto. Notice that even after a drink has been consumed frequently the glass will not be relinquished.

Keep your hands loosely by your sides. Closed fists or fidgety hands are an abrupt indicator of anxiety and tension. If you feel unable to relax your hands, hold onto a pen or a drink. Do not clasp your hands above your belt. While this may have been taught as a serious pose it comes off as insecure or untrustworthy.

Confidence

If you are standing, maintain proper posture with shoulders back and drawn in. This denotes confidence and also relaxation. Paired with a smile (smise or otherwise), this formula is powerful.

If you are in a situation where you are sitting take up space. Psychologically speaking if you make yourself smaller you could be insecure. Taking up space (legs slightly spread apart) shows confidence. Rest your hands lightly on your thighs.

Interest

To indicate interest, point your feet towards the person to whom you are speaking. Additionally, imitating the body language of this person will make them feel comfortable. For instance, if the person you’re speaking with pushes their hair back or tucks it behind an ear occasionally, try imitating the motion nonchalantly.

The phrase “actions speak louder than words” is especially true when it comes to body language. Being articulate is important, but be sure your body is articulating the same message.

For more information or how to apply this to networking, check out our Networking Tips and Tricks post.

Back-End Loading Your Next Negotiation


 

Negotiation is an integral part of initially securing your lease. Imagine this: Your broker did a great job negotiating your lease. The space comes with all the amenities you could imagine AND you saved a great deal of money a few years prior when you signed. Your company loves this space, but this year has been a little slow and goals weren’t quite reached.

 

Before you uproot your entire company and move everyone to a space you deem sub-par, consider renegotiation in the form of back-end loading.

 

In commercial real estate, this would entail negotiating a reduced rate for a certain period of time. For instance, you could negotiate an elimination of $5 per square foot for a year and then add that $5 back in the lease the following year.

 

More often than not, a landlord will not want downtime on their space. The money the landlord would lose (during this reduced year) would likely be much less than the money he or she would spend searching for a new tenant should the existing tenant vacate or go out of business.

Networking Tips and Tricks


Commercial Real estate agent and customers shaking hands together celebrating finished contract after about home insurance and investment loan, handshake and successful deal. 5 Reasons to Work with a TAG Broker

 

Social media and virtual advertising is an almost mandatory facet for businesses today. Small businesses differ slightly in that they heavily rely on their stock customers: regulars if you will. While small business continues to ease itself into the cyber sphere, word-of-mouth marketing remains a prominent factor in success and maintenance. Instead of going door-to-door, a great way to strengthen connections and create new ones is through networking events. Though networking is the purpose of attending a networking event, the first conversation can be rather daunting. Preparation, positivity, and confidence are all integral parts of the equation for a successful evening.

What can you do to be well prepared?
Bring a small notepad and a pen for any information you find significant. DO NOT take notes on your iPhone. You will lose eye contact and this will disconnect you from the person. Put together 3 to 4 questions that leave room for explanation. This is a great conversational catalyst. For instance:

  1. How did you get into your field?
  2. What in [name of field] are you most passionate about?
  3. What’s next?

These questions will brush the surface of the person you’re speaking with. After 2-3 minutes you’ll have procured a sufficient amount of information. You will use this to decide whether to delve into more detail or move on to the next person. Whichever you chose, remember not to remain with any one person for too long. If the conversation becomes drawn out, thank the person for their time and politely excuse yourself.

How can you remain positive?
Try to enter these events with the perspective that each one will be a learning experience. If you go in like a shark, potential connections and clients will sense that and avoid you. Smile and mention only non-confrontational topics that are not surrounded by conflict. For example, avoid politics and religion.

Many people will not follow up or respond to your follow up messages and that is all right. Try to speak with at least 10 people during the evening. Quality trumps quantity, but keep in mind the more opportunities you give yourself the more possibilities you will have to create connections. With time these connections will hopefully develop into strong, lasting relationships.

How can you approach these situations with confidence?
If at any point during the evening you begin to feel anxious or unsure, find solace in the fact that people will generally return the energy you emit. If you approach any conversation with a warm, connected tone the person will likely become relaxed and available for a more candid conversation.

Amy Cuddy gives an amazing TED talk on the importance of body language. She says that it has a huge effect on how others see us and it can even change the way we see ourselves. Check out her video here and listen to her talk about the Power Pose.

Another tactic you may choose to employ is to exchange business cards at the beginning of the conversation. This way you can be sure to remember the name of the person you are speaking with and will have ample time to commit their face to memory. Later, when you review the card (in conjunction with your notes), you will be able to pair a name with a face. Try to include one of these points in your follow up email.

If you feel that you had a strong connection with someone you met, add them on LinkedIn. Keep in mind that LinkedIn will not create the connection, but rather facilitate it.

Some of these events can be absolutely enormous. It is important to follow up the very next day–a maximum of 24 hours. If you do not receive a response follow up again in 7 business days and 7 more business days thereafter. If additional time passes and you have still not connected, assume you will not be hearing from that person.

The recipe for a successful night of networking is preparation, positivity, and confidence. The most important concept out of all of these ideas is to listen more than you speak. People may admire a great speaker, a wordsmith, and a charmer; but people will revere a good listener. A good listener creates calm and allows people to feel a sense of trust. If you can create trust in a short amount of time, this person is very likely to refer you to his or her connections/clients and perhaps even become a client!

For more information, questions, or comments contact Bill Himmelstein at bill@tenantadgrp.com.

Determining Commercial Building Class Types


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In commercial real estate building class is an important factor to consider when determining which sort of office will be most suitable for your company. While one building may seem comparable to another, upon closer analysis, frequently they will be quite different.

Office buildings are classified into three categories (A, B, and C). While standard of class qualification is largely subjective, there are some general guidelines to determine class. The class can be determined by age, amenities, technology capabilities, quality of HVAC systems, landscaping and how well the building has been maintained.

Class A: These buildings are considered the highest quality available and state of the art. This is due to their modern architecture, sound infrastructure, well functioning HVAC system, professional management, tighter security and altogether well manicured appearance. Generally, these buildings will be under 10 years old. Thus, a Class A building or office space will be the most expensive.

Class B: These buildings are still high quality, but may be a little out-dated. The average age will be between 10 and 20 years. Even in this case many tenants and/or landlords find these buildings to be a good investment. The technology capabilities may not be best in class, but typically will suffice. Security may or may not be on staff and typically it is not required to check in, in order to reach the space. While the amenities of Class B spaces rank average, with some façade work, a bit of interior redesign, along with an upgrade in management these buildings and spaces have the potential to be converted to a Class A status.

Class C: This class varies depending upon location (city, suburb, town, etc). These buildings are generally 20 years old at minimum. Some may be well kept, however, normally these buildings will lack many modern amenities. Technology will be lower quality and the HVAC system may not function well. In addition, this could include old elevators and mechanical systems, moderately run-down parking lots, and out-of-date furnishings. These buildings will not have security staff or food available on the premises.

For more information on building class or leasing contact Bill Himmelstein: bill@tenantadgrp.com

Tenant Qualification


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As a tenant broker we are the proverbial parent and our clients, the tenants, are our children. We want to ensure that they’re safe, warm, and well protected with a strong roof over their heads and an even stronger lease. Just like a student applying to a college that will check their credentials and qualifications, we must qualify our clients as well.
This allows us to get to know them better and to better understand their financial situation. The most important thing in qualifying a new client will be the financials.

Very simply, a landlord should be viewed similarly to a bank. The landlord is going to invest significant funds into a transaction. Like a bank, the landlord wants to know that they are lending (in the form of tenant improvement dollars, free rent and leasing commissions) to a financially stable company able to pay the rent. Many people are under the impression that leasing commercial space is like leasing an apartment- as long as they have good credit they will be in good shape. The main difference is that that rent for an apartment is typically far less expensive than the rent for office space. The landlord cares far more about whether they have growing revenue streams, a strong balance sheet, or have been a stable business for a long time. Having good credit provides no guarantee to a landlord that the tenant can pay the rent every month and on time.

Landlords, like banks, want to see income, profitability, cash flow, or at a minimum, financial backing. Without an operating history, without positive cash flow and/or a strong balance sheet, or without a large cash balance in a bank account, a landlord will be reluctant to enter into a lease with that business.

Another important qualification question is: does the potential client have an accountant, an attorney and an existing banking relationship? Having these relationships signifies a robust company where others have invested their time.

For more information on client qualification, contact Bill Himmelstein by email at Bill@tenantadgrp.com

Office Max Roundtable: Relationship Building and Competition


Last week TAG had the privilege of attending the Office Max Roundtable event for business owners. Senior Vice President Steve Sunderland and Executive Vice President Kim Feil facilitated the panel discussion of what it’s like to run a business and how a large corporation such as theirs could connect with us. From there we were broken into smaller groups with managers from OfficeMax stores all across the country.

Kim Feil and Steve Sunderland on stage at the OfficeMax Roundtable

 

We found that there were a huge variety of businesses, but the commonality we all shared was our desire to build relationships. For businesses and especially small businesses building lasting relationships is key. The strength that businesses have over huge corporations is our ability to make altruistic gestures and more importantly work together. The layman might say, “You’re just a wolf in sheep’ clothing; there’s no such thing as a free lunch”. In business we know that you make one person’ day and it comes back ten-fold.

Having relationships with your competitors is a positive, not a negative. This was one of the hot topics: Do new businesses need to scope out their competition? Not necessarily. As a general rule, it’s always a good idea to be aware of your surroundings. However, it is a waste of energy worrying what the competition is up to. There is enough business out there for everyone.

There was a consensus amongst business owners that retaining and acquiring clients is based on the quality of your work. If your customers can count on your expertise to complete the job, it’s highly unlikely that they will be looking elsewhere for a “deal”. One of the business owners I had the pleasure of meeting mentioned that he charges just a little bit more than the status quo, but continues to have a healthy flow of clients. When they come to him they know exactly what they are getting and are assured of his superior work. Additionally, he donates that little bit extra to several nonprofits.

From this roundtable discussion we reiterated:
1. Relationship building is key.
2. Retaining and acquiring clients is based on the quality of your work not the price as compared to the competition.

We learned:
3. Big corporations are finally listening and even asking advice.

10 Tips to a Successful Lease Negotiation


 

Bill Himmelstein speaks frequently about the importance of negotiation and how to become a successful negotiator. His last seminar honed in on the importance of negotiation when securing your lease. Below are his 10 Tips to a Successful Lease Negotiation.

1. Business terms– Double check that the business terms agreed to in Letter of Intent are the same as in the lease document.
2. 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.
3. Hold-over clause– landlord will ask for 200% of rent, however, 150% is fair and market.
4. 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.
5. Work letter– this should be studied closely to make sure everything matches up to what LL said he was going to deliver. If there is an allowance, base building items should be taken care of by landlord. If landlord constructing, make sure liable if no deliver on time.
6. Right to Terminate– this can be a great source of leverage to restructure lease regardless of how market has changed since execution.
7. 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.
8. Taxes & Operating Expenses– it is important to make sure capital improvements are not passed along to tenants through operating expenses. If gross lease, should be a Base Year.
9. Insurance requirement– have a qualified insurance broker review coverage requirements.
10. Damage or Destruction by Casualty– seek to minimize time in which lease can be terminated, and maximize the remedies available to the tenant.

When negotiating the details of a lease it’s important to be familiar with even the most infinitesimal details. An experienced real estate attorney will be able to facilitate this by reviewing the legal terms of the lease. Also, it can be advantageous to have an experienced commercial real estate broker negotiate the business terms of the lease. Both are paid by the landlord through a fee that already exists. This will save you time, money, and hassle!

 

 

For more information on this topic check out our post: The Definitive Guide to Finding Your Perfect Office Lease in Chicago

The Definitive Guide to Finding Your Perfect Office Lease in Chicago


 

Where do you see yourself in five years? No matter how old we get, this question never becomes less annoying. Whether we’re interviewing for a new job or even thinking back to our post college days right before we landed our first job–no one wants to answer this question. Now, where do you see your business in 5 years? Can you imagine your perfect office lease?

 

Here comes the even more annoying part. These questions are actually pretty important. Especially when it comes to running your business. Why? Well, eventually you reach that point. You blink an eye and you’ve arrived. “Welcome to Five Years From Now! How’ The View?” If you’ve made a plan, the view is probably pretty great. It may look different than you had imagined, but nonetheless you’ve worked exceptionally hard and arrived at a point that’s pretty comfortable. For the most part, it’s smooth sailing from here.

 

For the sake of conversation, let’ say you didn’t make any sort of plan (uh oh). Well, the same amount of time has still passed. Sure, you’ve achieved some things and had some good experiences, but something is about to run amok. Scenario 1: Your business has exploded! It’s thriving and things are moving right along. They’re moving along so quickly that you can barely fit everyone inside the building! Scenario 2: Your business is shrinking or changing and you can’t quite afford the space in which you currently reside. What do you do?!

 

Have no fear. There is still hope. Buckle up, because it’s time for:

The Definitive Guide to Securing the Best Office Lease in Chicago

 

Here we will discuss a step-by-step method that is sure to make things much less stressful and much more manageable.

 

Before we begin consider this: Your strongest allies in this process will be negotiation, your leasing agent, time, and above all patience.

 

Now, let’ begin with these three questions:

 

  1. Is your business growing, shrinking, or stable?
  2. What is your budget?
  3. What is your timeframe?

 

Answering these questions will allow you to form an outlined checklist or better yet a rubric. The more organized this process is the less stressful it will be.

 

Let’ consider a few scenarios with possible responses to our three questions.

 

Question 1

Scenario #1: My business is stable, but I’m planning to take on at least 2 more employees in the next few years.

-You’ll want to make sure you have enough space to accommodate these new employees comfortably, without changing the dynamic of the office. It can be VERY beneficial to include growth rights within your lease.

-It might be time to start the search for a new location (but we’ll get to that later!)

Scenario #2: My business may be downsizing in the near future, but I’m not keen on relocating.

-If you are very attached to your location, this is the perfect opportunity to renegotiate your lease. .

-Even if you are not downsizing, renegotiating is always an option!

 

Question 2

Scenario #1: I know exactly what I want, but I’m on a pretty tight budget

This is actually a positive. The tighter your budget, the more specific you need to be. If you know exactly what you want your broker will have an easier time finding your perfect lease.

 

Scenario #2: I have a pretty decent sized budget, but I’m not quite sure what I want.

-This is good and bad. The positive is that the bigger your budget the more room you have for modifications. The negative is the less specific you are about your needs the longer the process will take.

 

In either case, mapping out your budget will allow for a clearer understanding of what you will be spending.

  • Monthly rate
    • If you’re looking for a space downtown here are the prices you can expect based on class.
      • Class A: $35-$50 Gross
      • Class B: $22-$34 Gross
      • Class C: $17-$22 Gross
      • Utilities
        • As if individually metered or apportioned by sq/ft
        • Incurred beyond rent
          • Taxes
          • Common Area Management (CAM)

Question 3

For this question we’re not going to use scenarios. The timeframe has a lot of components.

 

On average it can take between nine months to an entire year to secure a lease for a business of just 5-20 employees. If your business has over 100 employees it could easily take 1.5 years.

 

REMEMBER: Time is your ally.

Time is your ally in real estate negotiation. Be aware of your time constraints. The last thing you want is to be caught in the lurch making rushed decisions and thereby losing leverage.

 

As part of your rubric make yourself a timeline. Here are the components you will need to complete it.

  • Negotiating business terms
  • Negotiating lease
  • Designing your space
  • Permitting
    • Architectural and engineering plans much be approved by the city. This typically entails a few hundred dollars in fees and between 6-8 weeks of waiting time for approval. You can expedite this process to just 2 weeks. However, this increases the price to a few thousand dollars.
  • Construction
    • Rarely does this aspect go without a hiccup. Be prepared for more time and if the planning is not done properly, more cost. Building out a 20,000 rsf office could take upwards of 2-3 months.
  • Lead time to find a new space (if you decide to relocate)

Don’t forget about landlord response time. Often a landlord is occupied and may take days, sometimes weeks to make a decision.

 

Now you’re in a great place! If you’ve followed the steps thus far you’ve created a pretty solid outline. You know your budget, your timeframe, and your likelihood for growth or reduction. Let’ fill in the details.

 

Filling in the Details For Your Rubric

If you have decided to stay in your current location, that’s great, it’s time for renegotiation. If you have decided to expand it is time to consider the type of space that will suit you best!

 

There are three categories of properties: Class A, B & C. Depending on your budget, the image of the firm you are trying to portray, and the quality of property you require. This can vary greatly. It’s important to understand the differences in class of property. Before you have your heart set on a space, be aware of how your employees are getting to work. Note if you will need to be close to public transportation and/or set aside a portion of your budget for parking, if need be.

 

There are three general types of space

  1. Loft space
  2. Private offices
  3. Collaborative space

Consider this when determining the amount of space you will need. Will you be hosting clients in your space? Does your space need to reflect your image?

 

The industry standard is about 250 square feet per person. Multiply this by the number of employees and you will have the approximate square footage you will need. If you are regularly hosting clients in your space it is important to have a clean, peaceful area to conduct business. For example, a nice conference room near the reception area is common. Having a kitchenette near the conference room makes sense. Potentially having an office or two for guests to use is a nice feature as well.

 

The only thing left to decide is the length of your lease. Landlord’ prefer to sign longer terms lease, and are more willing to reduce rents and increase concessions with the longer term. Shorter-term leases provide more flexibility to the tenant and typically are at a premium.

 

The rubric is now complete. You should have all the details listed and organized. The only thing missing now is the lease. Read below for our last three tips!

 

Lease Acquisition

There are a few different ways to secure a great lease. Our suggestion is to contract with a commercial real estate broker and a real estate attorney. This allows for the least amount of headache and the fastest acquisition with the best deal terms. If you choose to use a commercial broker we believe it is very important to find one whose agency represents only tenants. The conflicting interests of an agency that represents both tenants and landlord can be harmful.

 

The broker’s role is to minimize cost and the attorney’ is to minimize risk. Both are very important. However, the real estate attorney only comes into play after the space has been chosen and the broker has negotiated the business terms. Attorneys may have less knowledge on the business side of the equation. We suggest that this negotiation should be left to the broker. Likewise, the legal terms of the lease will need to be reviewed by a qualified real estate attorney- not your estate planner, IP attorney, or medical malpractice lawyer.

 

Negotiation is key. A tenant might be able to directly negotiate (without a tenant representative) an additional 5%-10% off the original asking price. We suggest utilizing a commercial broker, as he or she may be able to negotiate 25%-35% off the original price. This includes free rent, tenant improvements, moving allowances, reduced escalations and reduced securitizations.

 

Free rent is becoming less and less common. However, the longer your lease (more years of term) the more complimentary rent you will receive. Up until recently, one month of free rent was allotted per lease year of term. However, that too is dependent on other factors. For instance, if a larger tenant improvement allowance was negotiated you may be entitled to less free rent.

 

 

Subleasing

A company is an organism subject to growth, reduction, but most of all change. It is a good idea to give yourself the flexibility to sublease should your financial, special, or general situation change. Most all leases come with the ability to sublease. The difference will be in the terms of the sublease clause. This includes: the amount of time allowed to notify the landlord, how much control the landlord possesses in the process of determining ability to sublease, who the tenant can sublease to, whether or not the landlord can take back possession of the space relative to what you are subleasing, and how the profits (if any) are shared.

 

Co-tenancy

We feel that co-tenancy is not typically a good idea as it complicates the entire process. If you need to cotenant with another business, make sure you are both on the lease. Landlords prefer one entity, so that alone makes it a more difficult negotiation. Make sure that each party is responsible for their proportionate share. This can be difficult to achieve, as landlords would prefer to write two separate leases. We only suggest this to people who are very trusting of their co-tenant. In those scenarios, typically one tenant is on the lease and the other has a sublease agreement. We would highly suggest that you take caution when entering into agreements of this nature.

 

You have safely made your way through the guide and should be ready to take on the challenge of finding that perfect lease! The best way to do this is to know exactly what you want down to the smallest detail. With this guide you will hopefully have a clearer picture of your process and what it entails.

For more information contact Bill Himmelstein of Tenant Advisory Group.

 

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