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.
2007 Annual Survey of Owners Available On-line
The annual joint venture between CMAA and FMI conducts a survey of owners of capital and private projects, and the 2007 Annual Survey of Owners (the Eighth Annual Survey) is now available on-line through the CMAA website.
TheFMI/CMAA Owners Survey, which has become an industry defining and forecasting instrument, “is focused on how owners are accelerating the transformation of the construction process through the use of technologies to enable program management, collaboration, and effective communication strategies.” (page 6)
The report highlights 7 distinct drivers of the construction industry:
- Aging Infrastructure
- Aging Workforce industry-wide
- Struggle to Attrach Generation Y, and retain Generation X’ers and baby boomers
- Accelerated Schedules, globalization, and increased complexity in construction
- the Ability to Learn Alternate Delivery and Financing Systems
- Pressure to Meet Global Competition
- Investment in Purposeful Training
As in every Annual Owners Survey, the 2007 edition delivers a litany of information for the construction industry. Other highlights from the survey are asummaries of CM processes, enabling technologies, and the Use and Practice of Building Information Modeling (BIM). And a quote that sums up the survey best…
From W, Edwards Deming, “It is not necessary to change. Survival is not mandatory.”
Return to our blog to read more acrticles on these and other subjects related to the Construction Management Profession and the construction industry in general.
REDBUD Construction Services featured in Industry-Leading Blog
REDBUD Construction Services’ advice has been featured in a post this week on the Mark Up and Profit blog. Thanks to Michael Stone and his staff for teaching RCS how to serve their clients and we hope that our example can help others in the industry.
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