Inc.’s How To Get a Good Deal on a Lease
Inc. has a great article on the how-to’s of getting a good deal on a commercial lease.
[The article appeared in the May 2009 issue.]
Even though signs are showing that the residential real estate market may have already bottomed out and may be poised for slight upticks in certain markets, commercial real estate is becoming more and more a tenant’s market.
In the commercial real estate market, now may be the time to take a good look at that existing lease and renegotiate the terms.
From Inc.:
A commercial lease is a long and complex document, and negotiating one can be daunting. But a prospective tenant has a great deal of leverage at the moment. It has always been true in principle that everything in a lease is negotiable. Now, it’s true in practice, too.
This article gives some great advice for those of you not familiar with the structure of a commercial lease. Listed below are some things to consider before signing your lease (summarized from the article):
1. No matter how good a negotiator you are; don’t go it alone.
A good broker is essential, because he or she will know what landlords in your area have been offering to lure tenants, but you will also need a lawyer who knows commercial real estate.
Ned Harper, director of the Daytona State College SBDC:
“Brokers tend to like the lease — they don’t tend to bring things up unless you do.” A real estate attorney, on the other hand, “has seen what clauses are going into contracts. He’s the one who’s written them.”
2. Measure the space before you sign a lease.
Depending on how many times the space has been re-sized the floor plan used to determine the lease may be not accurate. Sometimes leases explicitly limit redress for a tenant that finds out after the fact that it’s paying for more space than it actually has.
3. Be aware of which expenses your landlord proposes to bill, particularly as part of CAM.
CAM = Common Area Maintenance. Some lease documents may include depreciation as a CAM expense. Ensure the right to see for yourself the expense budget, as well as which costs are actually incurred. Utilities are also borne by the tenants. In shopping centers, tenants are metered individually; in office buildings, utility costs are apportioned by square footage.
4. Maintenance Items…
You should get the HVAC systems inspected, along with the plumbing and electrical equipment. If you find problems, make it a point of negotiation.
5. Dont’ try to re-write the lease.
“Leases almost always favor the landlord. But you can build in clauses that level the playing field. Be strategic in setting priorities. “I try not to make wholesale changes, because they’re not likely to be accepted,” says Rick Gier, a lawyer in Overland Park, Kansas. “I’m more concerned with making four or five important changes than 20 small changes.”
6. Include a co-tenancy and exclusivity clause.
A co-tenancy clause lets a renter escape the lease if the landlord doesn’t replace the anchor in a specified period. An exclusivity clause guarantees a direct competitor won’t move into the same development.
7. Establish guaranteed selling points.
Landlords often make a selling point of high occupancy rates or a large number of monthly visitors. You should get these in writing and the exacting concessions (including the freedom to leave) if the landlord falls, say, 20 percent below the guarantees.
With the commercial real estate market taking a downward slide, now might be the best time to get a great deal on that space you have had your eye on for some time, or this might be the time when your lanlord will make consession on your current lease. Remeber: don’t swing for the fences in your lease negotiations, but rather try for a walk or a single. The landlord is in the game for the same reason your are…to make a profit. But short term consession might serve you both in the long run.
RCS Represents Developer in Lenoir City, TN Re-Zoning Meetings
REDBUD Construction Services’ Chief Manager, Shawn Van Dyke, recently represented The Tetra Companies (a Virgina Beach, VA based real-estate development firm) in several Loudon County Planning and Lenoir City Council Meetings for the purposes of re-zoning Tetra’s 267-acre Mixed-Use development, Town Creek Center.
Shawn appeared before the County and City Council and presented an overview of Tetra’s vision for Town Creek Center. An article appeared in The Loudon County News-Herald summarizing the specifics of the re-zoning request:
The first rezoning was of 189.51 acres R-3 and C-1 (high density residential and neighborhood business) to the C-3 highway commercial district. Secondly, 32.78 acres was rezoned from C-1 and O-1 (office professional) to the R-3 district to provide Tetra with an adequate plat to potentially construct medical offices — a complex of sorts — near and around planned apartments, which is the basis of the R-3 zoning request. Another 45.44 acres was rezoned from C-1 to O-1 in order to further plan the aforementioned medical complex.
Below is the Conceptual Site that was presented along with a Conceptual Landscape Buffer for the SW portion of the site.
REDBUD Construction Services is currently managing on-going construction activities at Town Creek Center which include the construction of Town Creek Parkway, the infrastructure and utilities, a $4M bridge over Town Creek, and prepping the site for a national Home Improvement retailer.
Reducing Project Costs
On August 28, 2008, Tom Koulouris – co-owner of Koulouris-Freyer, Inc., (KFI), a leader in construction management services, led a webinar sponsored by E-Builder. In this webinar Mr. Koulouris detailed ways to Reduce Project Costs. REDBUD Construction Services attended this webinar. With permission from Mr. Koulouris, we have summarized some of the main points of the webinar below.
The four major components of a project are planning, design, construction, and occupancy. The owner usually has control over the planning, design, and occupancy and the costs associated with these components, but spends most of his or her time trying to control the construction costs. The construction component is defined as determining the measurable output of the design as managed by the owner. And as Mr. Koulouris stated the construction component “is pricing the work that is planned and designed.” The planning and design components are the areas where the owner should focus a majority of his or her efforts in order to ensure that the overall project costs are minimized. Read more
Leading Power Center Developer Coming to Town Creek
REDBUD Construction Services provides Project Management services to the Tetra Companies for their Town Creek Center development, and they have issued a new press release today.
Lenoir City, TN Project Accelerated With Addition of Renowned Retail Developer
LENOIR CITY, TN, September 10, 2008: The Tetra Companies-a leading real estate development and management company in the Southeast & Mid-Atlantic-today announced that a nationally recognized big box developer has contracted to develop the 88+ acre Power Center component of its 267 acre Town Creek Center development in Lenoir City, Tennessee. The Power Center Developer will announce its plan for the project upon conclusion of negotiations with key anchor tenants.
The Power Center will complement the other components of Town Creek Center which include a home improvement retail center, medical office park, multifamily community, active senior community and neighborhood commercial. The first phase of Town Creek will be open in 2009 with completion of the entire project anticipated in 2013.
Michael McNally, principal & co-founder for The Tetra Companies, said,
“We looked long and hard at a great many developers to work with on the Power Center component of Town Creek and had identified this specific player for this project. We are very pleased with the development team we have in place.”
Liabilities for Construction Owners
This article in the Business Courier lists some areas of potential liability for owners of construction projects.
“As a construction owner, you can incur liability if you fail to recognize and comply with certain implied legal obligations, many of which spring from an implied covenant of good faith. Simply put, this covenant states that neither party will do anything to injure the right of the other to obtain the benefits of the contract. An owner can be found to violate this covenant when acting intentionally, or in bad faith, to frustrate or delay a contractor.”
Here are some examples of items that an owner can provide to avoid of liability issues:
- Providing a contractor with all soil studies and relevant information.
- Provide the contractor with accurate plans and specifications.
- Include contractual language making the contractor the guarantor of the adequacy of the plans and specs.
- Obtain a peer review of the design documents.
- Respond promptly to extension requests.
“To avoid claims and unsatisfactory results, it is important to pay attention to implied obligations on construction projects. With careful planning and awareness of potential issues, you can help ensure a successful project for everyone involved.”
Read the full article here.
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