Whether you're leasing your first office or adding another location to your lease portfolio, the negotiations are an important part of the process. To ensure that you leave the table with a favorable deal that will work for your company, follow these tips:
1. Consider the First Offer a Rough Draft
Commercial leases aren't like auto or residential leases. Landlords expect that there will be a back and forth between prospective tenants before the lease agreement is signed. As a result, the first draft will typically be written to protect the landlord's interests. You should consider it a starting point, and don't hesitate to submit a counter offer.
2. Be Realistic About Tenant Improvements
Most spaces will need some type of improvements or renovations prior to your move. Most landlords are stingy about the tenant improvement allowance provided in the lease, making it important that you have a clear picture of what absolutely must be accomplished before your company can occupy the office. Have a rough idea of what the total cost of the necessary work will be, so that you can anticipate what your out-of-pocket costs will be. If you can't get the landlord to agree to a higher amount, consider asking for a rent abatement to offset the costs.
3. Separate Your Wants From Your Needs
When you read the initial offer, you are likely to come up with a long list of changes that you will like to see, but it might not be possible for you to get everything during the negotiation process. Determine which changes are absolutely essential and which are just "would be nice to have." This way, you will know where you can make concessions to reach an agreement with the landlord.
4. Keep Your Options Open
Even if you heavily prefer one space, continue to negotiate on at least one more. This will ensure that you don't have to start back at square one if you can't work things out with the landlord.
5. Know the Market Inside and Out
COVID-19 has dramatically changed the commercial real estate market, making it more important than ever to research the current trends before you head to the negotiating table. Knowing how many vacancies are in the area and what the current rental rates are can give you leverage and help you assess the landlord's offer.
6. Double Check All the Figures
Mistakes happen. That's why it's important for you to crunch all of the numbers before you sign. Pay particular attention to CAM fees, usable and rentable square footage and base rent rate calculations.
7. Add Flexibility if You Plan To Go Long Term
During the negotiation, the landlord may agree to concessions in exchange for a longer lease. Going this route may make sense for your company, but be sure that you have language added to keep the agreement flexible. Early termination and sublease and assignment clauses can reduce the risk of your company becoming locked into a space that fails to meet your future business needs.
8. Have a Tenant Rep Broker by Your Side
A tenant rep broker is a valuable resource during the negotiating process. Not only can a rep give you insight into the market and explain complicated terms to you, but they can also act as your advocate and negotiate on your behalf. The landlord will cover their fees, so getting their help won't add any additional costs to the leasing process.
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Don Catalano
