How To Get The Best Lease Terms From
Not the way your landlord would probably have you believe. The risks and opportunities are often greater when you're renewing a lease than they were the first time around. Yet many tenants allow themselves to be led astray.
The Pitfalls of Do-It-Yourself Representation
One typical scenario goes something like this: Your lease is reaching the end of its term, The landlord has reason to believe you're relatively comfortable in the space and that you would probably like to stay. He or she then suggests that you negotiate directly rather than involving outside counsel. "You'll get a better deal this way," he says, "because we won't have to pay a commission, and everything will get done faster."
You take the bait. You have a full plate of other responsibilities in your core business. The prospect of saving time and money on a real estate matter, where you have little expertise - or interest, seems to make sense. Tn truth, it will take you countless hours, if not weeks or months, and chances are you'll leave more money on the table rhan you realize.
No matter how much you trust the landlord, it would be foolhardy to walk into negotiations without leverage and some knowledge of the market - what's available, the rental rates for comparable space, etc You can spend a week and barely scratch the surface. Moreover, the agents you encounter in your travels will not only be understandably biased toward the landlords they represent. they may have a further agenda: to become the listing agent for your current landlord.
New Lease and Renewal Require Similar Steps
Renewing a lease is JUST as important an undertaking as finding a location in the first place. If your company were looking specifically for new space, enlightened managers would typically go through a comprehensive analysis of every aspect of the operation.
They would examine and update business, strategic and marketing plans to assure that a prospective move would enable the firm to carry out business strategies in the most profitable fashion. Work flow, employee interaction, customer and supplier convenience Ð everything would be subject to scrutiny. At the same time, they would engage a real estate consultant to help quantify the firm's needs and provide up-to-date market information.
The Easy Way Out
A renewal should be pursued just as prudently, but often isn't. Sometimes, the reason is priorities. If business is chugging along at a satisfactory pace, and managers are fully immersed in core day-to-day responsibilities, there is a strong temptation to take what seems like the mosl expeditious route - sometimes called the "line of least resistance."
Concerns about jeopardizing a comfortable relationship with the landlord can also deter a business from exploring all the necessary avenues. Yet, in today's complex, rapidly-accelerating businc:ss environment, occupancy costs are too closely related to the bottom line to approach a leasing decision with anything less than critical attention.
That means not only having a precise picture of your company's needs and of what the market has to offer, but perhaps more importdnt, knowing what impact your staying or renewing will have on the landlord. Every owner and building agent will acknowledge that retaining a high-qualiry tenant is far less costly than attracting a new one, a fact that should be reflected in your rental rate and in concessions, even in a tight market. Yet few tenants, acting on their own, take such considerarions into account.
As a Tenant, You Should Know...
- The time and expense required to market the space if you move.
- The financial burden to the landlord and the effect on his relationship with the lender - if the space remains unoccupied.
- The cost of credit and other background checks necessary to qualify a potential tenant.
- The expense of extensive legal services and higher commissions.
- Free rent, moving allowances and other concessions necessary to lure a new tenant.
- The cost of major remodeling to satisfy a new tenant's needs.
Another issue few tenant think about is their own desirability; i.e., how much their presence might enhance the overll worth of the property. Every landlord looks for companies that are - among other things Ð financially sound and well regarded by other tenants and by the busines community.
As leaders in the field of tenant representation. we understand and repect all the nuances of renewals from both tenant' and landlords' points of view. We use that knowledge to advance our clients' interest.
There are occaasion, for example, when we remain behind the scenes, serving as advisers only. Sometimes the presence of a third party at negotiations between compatible tenants and landlords can do more harm than good. In that situation, a better course is to remain an unseen coach. In that role, we provide aJI tbe information and advice necessary to maximize our client's leverage withoul jarring a good working relationship.
Whether our role is visible or not. we urge clients to begin the renewal or relocation process as early as possible, That way, they have sufficient time to explore other opportunities. In our view, negotiations follow a better course if both parties are aware that alternatives are available and practicable.
If your lease expires in two years or less, we invite you to call our office for a no-obligation analysis of your current lease and a review of the steps you should take before you sign on the dotted line.
Five Costly Mistakes in Lease Negotiations
- 1. Renewing a lease without representation and without establishing a true market rate for the space.
- 2. Beginning the search for new space without specific budget information or square footage requirements. Owners' agents and space planners act in the best interests of owners to maximize the utilization of available blocks of space.
- 3. Failure to recognize and analyze how workplace and space allocation trends might affect your company.
- 4. Neglecting to allot enough time to look for space or to relocate.
- 5. Believing, incorrectly, that you can save money by negotiating without professional representation.