How to Make Quality Decisions as a TenantThinking Twice

1) Start Early: This probably means nowFinding the right office space for your company takes timeBe willing to start looking at least 3-6 months before you are ready to occupy spaceMarkets changeRates changeSpaces come and goNegotiations, preparation of documents , and making tenant improvements take time

Start Early: This probably means nowA quick and abbreviated glance at the leasing process:Survey the market Identify 6-10 properties you are interested in touringSet up and tour 6-10 spaces you have identifiedNarrow list down to 2-4 properties that fit your needTour these 2-4 properties againSend out Requests for Proposals (RFPs) on 2-3 propertiesNegotiate business terms on RFPs to determine best deal termsAgree in principal to terms of RFP and move to Lease documentHave landlord draft up a lease with agreed upon business termsAgreed upon business terms become very long and very legal lease documentHave lawyers review very long and very legal lease documentMake changes your lawyer recommends and send back proposalNegotiate until you have reached an agreement or deal falls apartMove or start negotiation process all over againThis was the abbreviated version

2) Know Your Lease: Or at least what file cabinet its inKnow where a copy of your lease is and know whats in itLease Summary DocumentKnow and understand when your lease term endsKnow and understand if you have options to renew your current leaseAt what rate? If market rate, how is it defined?For how long?How many days notice do you have to provide to landlord of your intent to exercise option?Know and understand any language in your lease related to Right of First Refusal or Right of First Offer on additional space in the buildingKnow and understand if you can terminate your lease early and if so, what are the penalties involved if you terminate?

3) Have representation: Here comes the shameless plugA good broker is worth every penny that your current or future landlord will pay him or herA good broker:Knows the marketKnows the ratesKnows the spacesKnows the brokersKnows the owners and landlordsKnows what a good deal looks likeTakes a complicated process and makes it look relatively easyAlways negotiates with your best interest in mindSaves you timeSaves you money Reads all of the documents word-for-wordThe Myth of Getting a Better Deal Without a Broker

4) Prioritize: Things are never equalKnow what you want before you go looking for itWhat is the most important thing to you and your company?Do you care most about?Location?Economics?Amenities?Floor Plan or Layout?Rate these four in order of importanceDo not waste time looking at spaces that do not meet your number one requirement

5) Rates: Never what they seemTriple Net v. Net vs. Full Service vs. Gross vs. Modified Gross Rates: Whats the difference and who does it matter?What does the rate include?What doesnt the rate include?Are there annual bumps in the rate?What is the rate on any option included in the lease?What is the rate on holdover rent?

6) Operating Expenses: Management matters Before you sign a lease, have your broker ask to see a copy of the expense statements from the previous three years.Have expenses been increasing from year-to-year?If so, find out why? Ask to see operating budget for the current year.What is the CAM or Load factor for the building?How does the Landlord define operating expenses?A building that is poorly managed is a bad building.

7) Base Year: Much more important than you ever thoughtIn most gross leases, the rent includes the costs of providing all of the normal building services (taxes, insurance, and general maintenance and upkeep), and the tenant is required to pay the landlord for its pro-rata share of increases in the costs of such services over an established base year (typically first year of lease term) Because the Base Year is used each year to measure cost increases, it is imperative that the Base Year be reflective of what it normally costs to run the building.

8)Upkeep and MaintenanceWhos responsible for the following:HVAC service, maintenance, and repair RoofFoundationsPlumbing and Electrical SystemsLight bulbsLandscapingParking Lot maintenanceSnow/Ice RemovalIs the property professional managed? If not, who does Landlord have taking care of the property?Dont be afraid to do a credit check on your Landlord. Can he or she afford to make any necessary repairs to the property? Check for tax liens, mechanics liens, etc.?Attornment Clause in Lease

9) TI: Not a kind of calculatorTI = Tenant ImprovementPaint, Carpet, erecting walls, taking out walls, etc.What sort of TI Allowance is the Landlord offering?If TI is not being offered, is Landlord willing to discount rate or offer free rent for any work needing to be done to the space?What interest rate does Landlord amortize TI costs in excess of the allowance? Will Landlord turn-key improvements to the space?Is it cheaper for you to do the work yourself?

10) Numbers: Crunch emGo analytical earlyKnow whats in the lease and what you are and are not paying forIf you are paying for utilities, have your broker find out what average utility bills have looked like for the buildingRates are not always the best indicator of a good deal.Do a NPV analysis of the different deals you are considering

ConclusionIf you ignore enough little problems with a lease, they become big problems costing you and your company thousands of $$$$$.If you dont know what you are looking for, you will not know that you are getting a raw deal.As my childhood hero G.I. Joe once said, Knowing is half the battle.

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