Four Helpful Tips for Negotiating Your New Lease
As an occupier, you are at an inherent disadvantage when negotiating your office lease. Consider the business owner who is focused on the day-to-day of running their business and only has their attention pulled to lease negotiations once every five to seven years. Now picture the landlord whose business is leasing their office building. While the occupier is concentrated on achieving their company objectives, the landlord is working with specialized real estate brokers and attorneys to structure leases that minimize liability and maximize return on its building.
Fortunately, if you seek help, you can approach the negotiating table with information that will enhance your ability to structure a more favorable lease. Here are four helpful tips that landlords don't want occupiers to know when negotiating a lease:
1. When their Loan is Due
If the landlord is looking to refinance their building, they need to provide a list of occupiers and lease terms. Lenders want to see low vacancy with a lot of term on the current leases. The occupier who knows the loan is due soon can potentially leverage this information to renew early with better terms.
2. Operating Expense Calculations
Operating Expenses (OpEx) are the expenses incurred from the continuous operation and maintenance of a property. As the occupier, you either pay for them through current rent or in addition to base rent. You should be aware of all operating expenses associated with your building, know which you are responsible for paying, and how you will be charged for them. Typically, OpEx is calculated using a base year with the occupier being held responsible for any operating expenses above the base year amount. Make sure you understand how they are allocated unless otherwise you might unknowingly end up paying for your neighbor’s electricity costs.
3. Landlords Reserved Rights
There are many rights that landlords reserve to provide them a greater degree of control. All are worth reviewing carefully. One such example is the landlord's right to lease. This clause gives the landlord control over determining who rents space in their building. Imagine you’re a law firm specializing in patent law. Would you want your competitor moving in across the hall? Better check the lease.
4. Tenant Improvement Allowance
What's the current market rate for a tenant improvement allowance? How much is it really going to cost to tear down that wall, re-carpet the area, and put on fresh paint? With construction costs increasing, it's important to know how far your improvement dollar will go and how much your landlord should contribute to remain competitive in the current market.
The best way to secure a favorable lease is to come prepared. If you’re unsure about your prospective space or any of the areas mentioned above reach out for advice from a professional.