Negotiate a lease with confidence.If there is one thing missing from the "tenant toolkit" in a typical office leasing arrangement, it is the necessary education and/or experience to make the deal sound. In that the average executive will only negotiate a handful of leases over the course of an entire career, competence is often difficult to achieve. While hindsight hind·sight n. 1. Perception of the significance and nature of events after they have occurred. 2. The rear sight of a firearm. is always 20/20, the learning curve is just too steep. Learning by making mistakes can be extremely costly. As a result, a company's representative (i.e. owner, office manager, etc.), will usually seek out advisors (i.e. real estate brokers, attorneys, etc.) to assist in the process. This can be something of a hit or miss scenario, since many tenants may not even know enough to properly evaluate the skills of the individuals offering them assistance. Tenants must work to educate themselves so that they become proactive participants in the process of leasing space, rather than merely spectators at the mercy of their chosen advisor's level of competence. An attorney is a key member to the team but many tenants fail to seek out this type of expertise. In our experience, an astounding a·stound tr.v. a·stound·ed, a·stound·ing, a·stounds To astonish and bewilder. See Synonyms at surprise. [From Middle English astoned, past participle of astonen, 90% of the smaller tenants (i.e. those occupying under 10,000 square feet of space) choose not to engage an attorney and often sign the landlord's "standard form lease" agreement with few, if any, changes[ When the landlord says "It's our STANDARD lease, everyone signs it!," Stop right there[ "Standard" does not mean right or fair to the tenant. When you consider the potential negative effect a lease can have on a company's bottom line, this is penny wise wise or prudent only in small matters; saving small sums while losing larger; penny-wise; - used chiefly in the phrase, penny wise and pound foolish. See also: Penny and pound-foolish. When you come right down to it, almost every business enterprise will enter into a lease for some type of space every three to five years and the lack of available education on the subject is appalling. It is up to every tenant to take the time to learn and understand the process so that should you utilize the services of a broker (and you should), you will have gained the knowledge necessary to guide the process and then monitor the broker's performance. More importantly, you will better understand the full ramifications ramifications npl → Auswirkungen pl of any lease that you are about to sign. Leases are usually very long, complex and often printed in very small type. For the most part, everyone hates to read them. Big companies, who have their own real estate department, in-house attorneys and multiple business locations, are used to modifying leases to their own standards and landlords are used to negotiating those changes. If you don't fit that profile, you're going to have to do a little work to protect yourself. Consider the following sampling of concerns: If the large tenant next door wants your space, can the landlord relocate re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. you elsewhere in the building? Most leases say the tenant can be relocated re·lo·cate v. re·lo·cat·ed, re·lo·cat·ing, re·lo·cates v.tr. To move to or establish in a new place: relocated the business. v.intr. into "similar" space and the landlord will pay for some moving costs. What if the new space is larger? What if you have specific business machines that will be costly to move? Does the lease protect you? How much time do you have before you must tell the landlord whether or not you will accept the move and can you reasonably refuse or do you have the option to cancel the lease? The landlord wants you to indemnify To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which him against everything.., but does he indemnify you? Did you read the "Additional Rent" or "Common Area Maintenance" section of the lease? Wow, now there's a confusing con·fuse v. con·fused, con·fus·ing, con·fus·es v.tr. 1. a. To cause to be unable to think with clarity or act with intelligence or understanding; throw off. b. concept. Do you know what your company's financial exposure is? How do you know that you aren't paying your pro-rata share of someone else's ski trip Ski Trip is an episode from That 70s Show. Jackie invites the gang on a ski trip then un-invites Kelso after learning he made out with another girl behind the gym. Plot summary January 13, 1977 Thursday afternoon. to Europe? A lease is a contract, just like any other contract your company might sign. Why is it that the vast majority of tenants simply sign the landlord's "standard lease" with only minor modifications, if any at all? If any other vendor presented you with a contract, you wouldn't hesitate to modify the language such that your interests would be protected. Remember, "standard" does not mean right or completely fair to the tenant!!! You might ask, "But shouldn't we be able to rely on our advisors in such an instance?" Tenants often involve their attorney far too late in the negotiation process to be 100% effective. When issues arise late in the negotiation, the landlord will often feel that the tenant is attempting to re-trade the deal and become resistant to making changes that are detrimental det·ri·men·tal adj. Causing damage or harm; injurious. det  ri·men to his position. The attorney's
role, as a result, is often limited to reviewing language as necessary
to insure that the lease reflects the already fully negotiated business
points of the transaction. Clearly, involving an experienced real estate
attorney throughout the entire process can help to insure that all the
important issues are in focus early on in the negotiation.
"Well, isn't this where an experienced real estate broker steps into the knowledge gap?" In response, I would simply ask how a tenant, who may themselves possess limited knowledge, can properly assess the skill sets that a real estate broker brings to the table. While a competent real estate broker will be generally knowledgeable with regard to the issues, it is our experience that only the very best could provide a thorough explanation of both the landlord and tenant considerations when negotiating most lease clauses. Below are a few examples of what you should know about the lease document when it comes to leasing commercial real estate leases. Sample Tenant Considerations: * Often people who are starting a new business intend to incorporate but have not actually done so at the time the lease is signed. What are the ramifications should this occur? * Landlords often tie increases in base rent to the Consumer Price Index (CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch. (2) (Counts Per I ), is there any rationale for this? What are some of the common pitfalls in CPI operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. escalation clauses escalation clause n → cláusula de reajuste de los precios escalation clause n → clause f d'indexation escalation clause n ? * When does a percentage increase in the rent result in an undue windfall windfall An unexpected profit or gain. An investor holding a stock that increases greatly in price because of an unexpected takeover offer receives a windfall. for the landlord? * Why do many "standard form" leases deal with operating expense and property tax escalations separately? Why should a tenant object? * If you are a 501C corporation, how can you seek financial benefit from your non-profit status? * In a newly constructed property, why would the tenant often request a "net" or "$0.00 dollar stop" lease? * Which is better for the tenant, a lease which doesn't "gross-up" operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. or one where the "gross-up" is calculated as if the building were 95% leased? * What are the 20 items that the careful tenant most frequently requests be excluded from the definition of "operating expense"? * What successful strategies do sophisticated tenants utilize in seeking to limit their potential exposure for holding over at the end of the lease term? * The landlord has asked to be indemnified against everything, what are the tenant's negotiating positions? * What are the concerns that a tenant ought to have regarding the condemnation Condemnation bell, book, and candle symbols of Catholic excommunication rite. [Christianity: Brewer Note-Book, 85] Bridge of Sighs passage from Doge’s court to execution chamber in Renaissance Venice. [Ital. Hist. provisions of the lease? What is the one provision that sophisticated tenants typically add to the landlord's "standard form lease"? * Most significant arguments with respect to rent abatement A reduction, a decrease, or a diminution. The suspension or cessation, in whole or in part, of a continuing charge, such as rent. With respect to estates, an abatement is a proportional diminution or reduction of the monetary legacies, a disposition of property by will, when and set-oft arise over the landlord's services clause--the tenant wants a right to set-oft rent in the event that necessary services are not delivered. Since landlords typically resist this concept, what are some compromise positions that will still afford the tenant some protection in this regard? * Most leases provide for the landlord to be able to relocate a tenant to "similar" space. If the tenant is unsuccessful in striking the clause outright, what are the tenant concerns that the lease should address? * Construction delays or perhaps a current tenant holding over could result in possessory pos·ses·so·ry adj. 1. Of, relating to, or having possession. 2. Law Depending on or arising from possession: possessory interest. delays at the beginning of the lease term. How can the tenant protect themselves with respect to their own commitments, most notably the commitment to vacate To annul, set aside, or render void; to surrender possession or occupancy. The term vacate has two common usages in the law. With respect to real property, to vacate the premises means to give up possession of the property and leave the area totally devoid of contents. their present space? * How do the terms "rentable", "usable USable is a special idea contest to transfer US American ideas into practice in Germany. USable is initiated by the German Körber-Stiftung (foundation Körber). It is doted with 150,000 Euro and awarded every two years. " and "building factor" affect the tenant? With respect to the efficient use of square footage, how does the tenant achieve a true apples-to-apples comparison between buildings? What are the "rules" and who sets the measurement standard. If a re-measurement of the building results in the tenant's rentable square footage increasing, will the rent increase? * What limitations on its liability should the partnership tenant seek to incorporate into the lease? Walter Collier is a freelance writer. |
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