Commercial Real Estate Leasing Negotiation Mistakes and How to Avoid Them!
The main risks to consider when leasing a commercial office space is time, money, and risk. You must understand which location is going to yield you the best rate and terms. You also want to avoid choosing a bad location or making an erroneous operational decision. Furthermore, you need to keep in mind what your options are in the event that your business needs to expand, contract, or relocate. You must also consider how long it will take to find the right location for your business, the time needed to negotiate your terms, as well as how long it will take you to move in and become operational.
Your tenant rep broker can usually create a market survey for you outlining available properties within a week by motivated companies already familiar with the local market. These are just a few of the preliminary tasks that are done but many other complications, often overlooked, need to be factored into the space acquisition timeline.
#1 Allow Enough Time
- Negotiations can take weeks or even months
- Once the lease has been fully executed, if the space needs a build-out, you can expect to wait another one or two months
- Before renovations can begin, permits need to be obtained and can take one to two months
- Before permits can be obtained, architectural plans must be completed and can take one to two months
- If new construction is in the plans, that can easily take from 9 months to 1 year to complete
#2 Don’t Neglect Long-Term Responsibilities
Potential tenants who don’t think about the forecast of what their business requires can prove to be a detrimental problem. Business owners who only think of solving their immediate needs can face expansion problems way sooner than they expected. In addition to considering short-term needs such as square footage requirements, floor plan, communications needs, parking, and accessibility, make sure those considerations can expand to the overall vision of growth for your business. By negotiating lease terms which will allow the company to expand, downsize or relocate as circumstances dictate, business owners can avoid the unnecessary headaches, loss of business and costs associated with relocating. Examples of such important lease clauses include:
- Expansion rights which obligates the landlord to provide the tenant with more space in the event of company growth
- Cancellation rights which allows the tenant to break the lease under certain conditions such as when the tenant needs to expand and the landlord cannot provide the tenant additional space
- Extension rights (which is similar to an option) which allows the tenant to remain in the premises
- Sublet rights which gives the tenant flexibility in that, if they must relocate, they may sublease the space
#3 Inadequate Representation
Unless someone in the company is versed in commercial real estate, most businesses will need to find adequate representation through a tenant rep broker. Lack of representation and industry knowledge combined with time pressures can cause unrepresented owners to make location decisions without being aware of all the choices available to them and make costly errors that cut into their profits. An experienced and specialized tenant rep broker counterbalances the landlord’s leasing agent and insures that the tenant receives the best possible rates, terms, incentives, and lease clause protections. What is amazing is that this services comes to the tenant at no cost to the tenant whatsoever. Tenant rep brokers usually share the leasing fees paid by the landlord.
Using the wrong broker can lead to incomplete information or conflicting loyalties because of hidden agendas or landlord relationships. You must keep this in mind when working with a large firm because, often times, they represent both the landlord and the tenant which can lead to obviously potential problems. Business owners who don’t use a tenant rep broker will likely not be aware of all the possible location choices. This is because experienced tenant rep brokers have developed an extensive network and can find locations that are not yet vacant or on the market. Lastly, it is super, super, super important to keep your broker informed. Your broker cannot properly assist you if you have not provided full-disclosure on your situation and your company. Giving this information to your broker will help them to best negotiate for you and will prevent uninformed decisions from being made as well as lost opportunities. If you are looking for good representation, click HERE.
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