"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 and pound-foolish. Of course, just as in any other profession, attorneys are not all created equal and that's precisely why we developed the report entitled "Lease Clause Analysis - Issues of Significance", which can be found in "Products & Resources".
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. The instructional materials available at this site provide much of the practical knowledge tenants need to successfully negotiate a commercial real estate lease.
Let us help. Discover the most advanced ideas and key concepts in use today by the top people involved in leasing commercial real estate right here. Find out how to better protect your company's bottom line. And in response to all of the concerns addressed above, you'll find that this site offers a "Quick Start" program of instruction highlighting many of the more significant issues, offers practical ideas and suggestions and, helps you determine what works best for:
- Understanding the lease process, from beginning to end...
it's not rocket science, just employing good business practices
- Helping your company analyze its needs and determine the square footage requirement
- Providing a method of property comparison analysis based on a market survey
- Developing the Request For Proposal (RFP)
- Negotiations including lease clause analysis and other issues of significance
This site offers the knowledge and tools that will allow you, the tenant, to quarterback the process of leasing space. 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 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 you elsewhere in the building? Most leases say the tenant can be relocated 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 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 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 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?" In our experience, 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 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), is there any rationale for this? What are some of the common pitfalls in CPI operating expense escalation clauses?
- When does a percentage increase in the rent result in an undue 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 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 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 and set-off arise over the landlord's services clause - the tenant wants a right to set-off 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 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 their present space?
- How do the terms "rentable", "usable" 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?
Think of the "Products & Resources" portion of this site as the toolkit containing the "nitty gritty" details of EXACTLY what you need to know in order to successfully consummate a commercial real estate lease... with sophisticated software tools that have been used by our board members so successfully, time after time, while representing their own tenant clients. We want to give you an edge that you can't get anywhere else.
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