What is Tenant Representation? A Commercial Leasing Primer

In this article, you'll learn:

What tenant representation is and why it helps tenants secure better leases.
Challenges of finding space without tenant reps and how they solve these issues.
Benefits of tenant reps, like access to off-market properties and stronger negotiations.
How tenant reps avoid conflicts of interest and ensure you get the best deal possible.

For many businesses, locating a suitable office space is a major decision. Sadly, only a small handful of tenants get the representation they need to not only save time, but to get the best deal negotiation. Tenant representation brokers help prospective tenants worry less about leases so they can focus on their business—all while saving money and headaches.

What is Tenant Representation?

A tenant representative, or tenant rep for short, is a commercial real estate expert who works exclusively for the tenant. This is different from standard real estate brokers, who represent both landlords and tenants (and thus have an inherent conflict of interest).

Before you go ahead and appoint a tenant rep, it’s necessary to have a basic understanding of what one does. An essential function of a tenant rep is to analyze your location and assess whether you should stay or leave. You may continue to stay put or weigh your options to ascertain if your business is ready to move to another location.

Both options need to be considered and assessed financially and logistically, for an informed decision to be made.

Why Hire a Tenant Rep?

A tenant rep broker solely has the corporate tenants' best interest in mind throughout any commercial real estate project they do. They will provide market knowledge, help tenants' avoid mistakes, assist with negotiations and much more.

When you want to hire a tenant representative, opt for a firm and broker that represent tenants only, and has a perfect understanding of the industry. Somebody you feel you’re comfortable with and you can trust. A tenant rep will be available even after signing the lease in case you have any questions or issues.

You can consider the tenant rep as another arm of your internal staff. If your company requires help much later, the existing relationship will prove wise, whether you're expanding or downsizing.

Here are a few of the challenges of trying to source a new property without the help of a tenant representation broker:

1) Getting Landlords to Return Calls

If you have taken up the task to find office space on your own, you'll understand how hard it can be for a landlord or landlord broker to return your calls.

Landlords are always very busy and do not have time to return every call they receive. A landlord may also hire their own landlord broker, who is probably used to working with other brokers than with individuals.

When you hire an experienced tenant rep, it solves this problem in several ways:

A tenant rep has the reputation of the company they work for, which gives them more authority when they call landlords.
The leasing broker has probably had a relationship with the tenant rep before now --they may even have another deal in the pipeline-- and therefore, there's a high chance to return their call. These business relationships are essential, which makes it possible for the landlord to consider an offer on their space.

2) Certain Properties Do Not Go on Listing

When searching through listing sites, it can be challenging to have an idea of what's available on your own.

While you spend time clicking through some listing sites, searching for a suitable space can be an excellent option to get a feel for the market. However, many brokerage firms fail to update their listings on some of these sites, making it impossible to succeed with your search.

A tenant rep has so many resources to solve these problems and find the best inclusive list of location options present on the market.

Complete Listings: Tenant rep brokers can access the most comprehensive listing databases.
Industry Relationships: Tenant representatives initiate quality relationships with both landlords and leasing brokers, allowing them to get updated information on what's available.
Off-Market Options: Using their industry connections, tenant rep brokers get access to information on spaces that may not be on the market yet.

Not only do tenant reps have the resources to find you all the options available, they will also take the time to cull through the list and present to you the options that best suit your needs.

3) The Available Space Might Not Necessarily Be What You Need

It is essential to begin the site selection process via a need assessment. Is your vision in tandem with what you need? A tenant rep will make inquiries and run the preliminary analysis to help you determine what is required in your new space, while considering your budget, and many other factors that go into finding the right space for you.

Most times, companies are searching for new space when their current one has outlived its usefulness.

Is your company growing at a fast pace---or downsizing?
What is the projected growth of comfort?
How does your company make use of space? Does it operate on private offices? Or the company is looking out for open, collaborative space?

All of these questions will be sorted out with a tenant representative. The ideal profession will ensure that all issues are put into perspective for a good result.

Office Parking Clauses to Look for in Your Next Lease

4) Finding Parking Space for Employees

Having parking spaces for employees is critical for most office tenants, but securing enough space is a challenge. Parking is usually limited--especially in crowded locations--and can be expensive.

Your tenant representative can offer expertise in negotiating an ideal parking arrangement in your lease by:

Researching other transportation means for employees
Negotiating lower monthly parking fees
Estimating the right number of parking spots needed
Providing creative parking solutions

If you feel that parking is essential when searching for new space, hiring a tenant rep comes handy to avoid overpaying and making sure you get all the right parking terms in your lease.

5) Finding the Location That Fits the Bill

The decision on where you want your office to be located is of prime importance. No two submarkets are the same, so while you may have a specific location in mind, it may not be an ideal fit for your needs.

A tenant rep broker will help finding you the right space in all the submarkets and will provide an answer to all your questions as regards to the pros and cons of a specific area.

Can clients locate the office easily?
Are rental rates within your budget range?
Can the building be accessed from significant thoroughfares?
Where do your employees live and how far is the commute?
Will you get the right signage?

These questions and several more will be resolved with a tenant rep even before you accept a location.

6) Dealing with Your Facilities Needs

The truth is, leasing office space with an access to a food court, a gym, and outdoor spaces seem more like a dream come true. The building comes with several facilities, but how do you know the ones with the most bang for your buck?

If amenities are essential to your office search, a tenant rep can offer you an idea of:

The amenities in the building and in the surrounding neighborhood
What the Common Area Maintenance (CAM) costs are
Will this location attract the right potential employees

negotiation

7) Negotiating Your Deal Term

Jumping into the negotiation process without experience can be pretty daunting. A landlord can quote any number or terms, and you have no inkling whether they're standard for the market unless you do an in-depth research beforehand.

Things like renewal options, tenant improvement allowances, and exclusivity use terms are just a few items for negotiation, and it can be hard to know how to negotiate these if you do not have experience in the real estate industry.

Searching for an office is hard enough, jumping into it without knowledge could spell doom right off the bat—and no CEO wants that. To give yourself the best chance of reaching the best deals, the experience and expertise of tenant rep suffices to help you weather the storm and make the process as seamless as possible.

What Does a Tenant Rep Do?

There are many tasks that a tenant representative might perform to support you as you search for a new commercial space. A short list of tenant rep responsibilities includes:

1. Defining Your Needs

Many companies end up having to move at the end of their leases because the spaces that they selected weren't in line with their needs. A tenant rep broker can help you avoid this hassle. With their experience, reps can help you pin down how much space your company needs and what location or geographic area is right for you.

2. Providing Search Assistance

Once you have a clear picture of your needs, a tenant rep can match your company with offices in the right area. Often, reps can get exclusive access to properties that you might otherwise never be able to tour, giving you a chance to snag an office in a highly sought building or prime location

3. Researching Market Information

Understanding market conditions is vital to getting a fair lease. A tenant rep has a wealth of market data at his or her disposal, so you won't have to spend time doing the research yourself or pay for software to get the job done.

4. Acting as a Real Estate Reference Guide

Commercial real estate involves an entirely new vocabulary of terms that you may never have encountered before. A tenant rep can explain key terms and language in simple words, so you can feel confident that you understand the process.

5. Providing Expert Advice

While the decision will always be ultimately yours, a tenant rep can be a valuable asset during each step of the decision-making process when you're comparing spaces and negotiating with a prospective landlord. The rep is your advocate, meaning you can feel confident about their advice.

6. Leveraging a Network of Contacts and Resources

An experienced tenant rep will typically have a network of professionals with whom they work with regularly. This means that if you need an architect, a space planner or another professional's assistance during the process, you won't need to waste time selecting one.

7. Providing Assistance at the Negotiating Table

The help of a tenant rep broker doesn't stop when you enter the negotiation phase. Your rep will be with you every step of the way. He or she can help you prioritize your must-haves so that you can negotiate strategically. Knowing the market inside and out, the tenant rep can tell you whether various aspects of the contract are reasonable. Your representative can also explain elements of the contract to you and help you feel confident that you know what you're agreeing to. Ultimately, a tenant rep broker can weigh in on whether you should accept a deal or walk away from the table if you reach an impasse with the landlord.

The Biggest Benefit of Tenant Representation Brokers: No Conflicts of Interest

The problem with traditional real estate brokerage firms is that they work for both sides of the negotiation at the same time—creating an inherent conflict of interest. Many companies fall victim to this by thinking that all brokerage firms are the same, not being aware of all their options.

The following points will help you understand the differences between your real estate brokerage representation options:

Tenant Reps and Brokers Are Not the Same

Tenant representatives and brokers both assist with the commercial leasing process, but the terms are not interchangeable. Both types of professionals can help you find office, retail, warehousing or industrial space and act as an assistant during the negotiation process, but who these individuals represent differs.

Tenant Reps Work for You

Brokers work for both you and the landlord. The key difference between tenant reps and brokers is for whom they work. A tenant rep serves as the advocate for the tenant only. A broker works for both the landlord and the tenant.

Brokers May Tell You That You'll Save Money if You Skip Using a Rep

Often, brokers who are eager to secure the business of a company will say that using a tenant representative for tenant representation will make the process costlier. This is because the landlord pays the fees of the tenant rep. While at face value this may be true, brokers are also paid a fee. Even if the broker's fees are lower than the rep's, tenants may still not see the big savings they are promised.

Brokers Often Have a Conflict of Interest

A broker's job is to fill the landlord's units, buildings or offices with tenants. As a result, he or she may recommend properties that are not completely in line with tenants' needs or that are not priced fairly in respect to current market trends.

Choosing a Rep Frees You of Conflict of Interest Concerns

With a tenant representative, you can feel confident that your interests are being looked out for. Because a tenant rep works solely for you, he or she will be most concerned with finding you the right space for your needs and helping you negotiate the fairest lease possible. That's why even if a rep's fees are higher than a broker's and the landlord folds some of those fees into your rent, you still have the potential to save money when you opt for a rep to serve as your tenant representation.

Doing Background and Reputation Checks is Key

While tenant reps are the smart choice for tenant representation, keep in mind that they're not all the same. Before you enlist the help of a particular rep, do some Internet research to get a feel for his or her reputation in the area. An experienced rep should also be able to provide you with a list of references for you to check.

renegotiate

Landlords Have the Advantage When You Don’t Have a Tenant Rep on Your Side

There's nothing that makes landlords happier than working with tenants who don't have representation. That's how your landlord gets the best deal possible for him or herself. And if you're working on your own, here are the gifts that you'll be giving your landlord:

1) Too Much Rent

Do you know how much rent you should be paying? Are you sure? Should it be $42.50 or $43.25 a foot? What about the difference between a space on the third and thirty-third floor? Your landlord knows what he or she wants to charge, and if you're on your own, you won't know what the right price is in the market.

If you think you do know the right market price, keep this in mind: The prices that you see in "for rent" ads aren't the prices that landlords actually charge – they're the prices that they ask for. It's almost impossible to know what spaces actually cost – unless you're the one in the market doing the deals.

2) Too Few Concessions

Did you know that most landlords usually offer some free money up front to induce tenants to choose their building? Usually, the free money comes in two forms. Free rent is a typical concession. This means that you get to have the space and not pay for it for a period of time (usually measured in months)!

The other free money that you can get is landlord support for tenant improvements. You build out your space, and you send some or all of the bills to your landlord for him or her to pay. If you don't know what's reasonable in your market, you'll probably leave money in the table -- and in your landlord's bank account.

3) Big Rent Increases

When you really think about it, it's reasonable to have your rent go up a little bit from time to time. After all, the cost of running a building goes up and inflation is a reality. But how much of a rent increase is reasonable? Should it be 3.5 percent per year? Or should it track the consumer price index (CPI)? Again, if you aren't sure, your landlord will be.

4) Creative Building Rules

Did you know that most leases have lists of building rules buried in them? And you might find all sorts of requirements in them. It's not uncommon for buildings to ban pets, which means that "bring your dog to work on Friday" won't be an option any more. You could end up having to pay extra for elevator or HVAC service after 6 pm.

Additionally, doing things like bringing in Chipotle for office lunches on Monday could be against the rules if you're required to use the building's catering service. You know. The one that

5) Less Risk for Landlords (But More Risk for You)

Are you a small business? You've probably set up a structure to separate yourself from your business's liabilities. But if you go to your landlord by yourself, he or she won't care. It's very common for building owners to ask business owners to personally guarantee their leases, so that your assets will be on the hook for your business' rent liabilities.

6) Silence. Sweet Silence.

Finally, if you're on your own and you call a busy landlord to ask about a space, they just might not take or return your call. They want to fill the space and they know that they can usually get a good deal by working with an unrepresented tenant. But they also know that it's easier to work with a professional on the other side of the table, so many landlords won't take unrepresented people seriously.

With all of this in mind, there is a very easy way to ensure that you're getting a fair shake in the lease negotiation process. Find a tenant rep broker, and work with him or her. Your rep will get you the attention you need and get you the right deal for you and for your market instead of the right deal for your landlord.

Let your company have the best chance of finding that perfect space with the best lease terms for your needs; it is essential to have a tenant rep for your search. By doing so, you push aside all the headaches and trouble that comes with the process. Navigate the process with the experience of those that understand the industry and can give you leverage from start to finish.

What is Tenant Representation? A Commercial Leasing Primer

What is Tenant Representation?