Top 10 Things You Need to Know about Leasing or Renewing Commercial Office Space
For those that run an organization or own a business, there is a daily laundry list of items that compete for attention. New business development, client retention, HR, equipment, and the actual client work all top the list. Ironically, one of the largest items on a balance sheet is typically the last thing considered: The Lease.
A lease is generally accepted as the cost of doing business. The space is a requirement for effective business activity and the terms and conditions offered are what they are. This is a common misconception and one of the myths this article will seek to dispel.
Below is a compilation of the top 10 things to help you navigate the search for space and manage expectations in the negotiation process.
1. Find a tenant broker that understands your needs and your business and knows the area.
Finding the right broker to represent your business is the first step in beginning the real estate process. For those who wish to deal directly with the landlord, remember the adage about the attorney who represents himself. Spend your time wisely; it’s valuable and a commercial tenant broker will be your single greatest asset in the process. Remember, there is no cost to you to have a broker represent you as every lease contains a marketing fee, so take advantage and have someone looking out for your best interests.
2. Allow time for the process and don’t rush it.
As a general rule, you should begin the process at least 12-18 months ahead of any trigger date, be it a move or a renewal. In the case of a renewal, many leases will have clauses that dictate at what point before your lease expiration you need to inform your landlord of your intent to stay, typically 6-12 months. Time is leverage in the negotiation process; use it to your benefit.
It may sound ridiculous to start almost 2 years before your lease is up, but having too much time is better that not enough. It’s common to sign a lease up to a year or more before occupancy.
3. Let your broker do the negotiating.
Again, seems obvious, but a tenant can damage the negotiations by going outside the communications chain. Your broker cannot make decisions on your behalf, so listen to what they have to say and trust that they will shepherd the process along according to your wishes.
4. Everything is negotiable.
In the chain of negotiation, the only things set in stone are the taxes and operating expenses in a direct lease. In a sublease, all points are negotiable. A good broker knows this and will do their best to get you the best deal. Don’t accept any proposal from your landlord unless you’ve negotiated the terms to your best advantage.
5. Don’t get emotional.
One of the reasons brokers do the negotiating is to remove any potential animosity between you and your landlord. Getting angry will not get you anywhere and will likely impede negotiations or sour a deal. However, if your gut (and likely your broker) tells you the deal is not a good one, don’t be afraid to walk away. Sometimes it’s just not going to work out. Usually it’s for the best.
6. Be open to all locations.
Don’t be married to one area – you may end up getting a much better deal elsewhere. Once again, the right broker will know the best locations and work within your parameters to find the spaces best suited to your needs. Even if you are convinced you need to be in one location, be open to all possibilities.
At the same time, if your broker is only showing you spaces you don’t like, you need to better explain your needs to them.
7. If you don’t understand something, ask your broker to explain it.
Don’t be embarrassed if you don’t understand the terms brokers use or the impact of a clause. You know your business very well, but you wouldn’t expect your broker to unless you explain it to him. The same rule applies. Your broker should go over everything in a letter of intent (LOI) and what it means, but if they don’t, ask them to. Read the fine print and make sure you understand the implications.
8. Have money set aside for your move.
You’re going to incur some expenses in your move. A moving company, new equipment, IT, it all costs money. Make sure you have it set aside. Your broker should give you a spreadsheet that itemizes those expenses; so make sure you get it from them early on.
9. Be open to alternative lease arrangements.
Subleases, reassignments, different ownership arrangements; they all have their place in the market. Don’t be afraid to entertain them, sometimes the least obvious option is the best one.
10. Hire an attorney.
Your broker can’t give you legal advice, nor should they. Consult a qualified real estate attorney to review your lease before you sign anything. Some brokers are real estate attorneys and can review and add comments to give to the attorney, but you should always have an attorney review your lease. If you don’t have one, your broker knows plenty and can recommend one.