Tag Archives: lease negotiations

Lease Negotiations: Leave the Gloves off and Come together

February 17, 2014 By in Archives Tags: , , , 7 Comments
Leave the Gloves off

Leave the Gloves off

When preparing for lease negotiations, leave the gloves at home, roll up your sleeves, and take the positive offense approach. Consider the following steps to keep lease negotiations on an even playing field that produces the best results for both sides.

1. Write down what you want to achieve from the negotiation, including the financial and non-financial objectives. Know the few points that you are going to have to go to the mat for, and be open with the other side if they are giving you something that has little value to you.

For example, if you are considering a lease decide if getting a lot of free rent is more important than an increase in tenant improvement dollars. Tenant representative brokers have models that can give an objective analysis.

2. List your strong and vulnerable points so that you can be prepared to leverage or hone these to your advantage during the lease negotiation process. Taking stock of your strong points will help to keep them front and center when it comes time to step into the arena of negotiations. Keeping track of your vulnerable points will also help you to maintain your balance so that any conversation coming from the other side that attempts to highlight those point will be met with a well prepared strategy.

For example, if you are not considering to move for the right deal, you have little leverage with your landlord at the time of lease renewal. Take inventory of other tenants in the building and learn about what terms the new tenants are paying.

3. Conduct research to gauge competing properties. Being well prepared for any negotiation is to have a solid second (or third) alternative – then make a list of what would have to happen to make them your top choice. It is that type of confidence that will result in a “win”.

As an example, think about any purchase that you make online, whether it be something as small as a book, collecting data from different online vendors can aid in saving you money when it comes to making the final purchase.

4. Rely on a strong team to support you during the negotiation process. Having agents to speak on your behalf allows you to proceed knowing you have a team with specific knowledge in your corner. When choosing an agent, ask how their representation process yields results. Also, ask the agent what tactics do they have up their sleeve to effectively advocating on your behalf.

Download Prepared to Win/Win Worksheet and find out how other blog subscribers are effectively using this simple form to get what they want.

Some other great articles to read:

How standard commission agreements work for the broker but not always for the client – Part I

The allowance that disappeared – where did it go?

Image Credits: Gorilla & Kangaroo Boxer

7 Questions to ask your future landlord

February 3, 2014 By in Archives Tags: , , , , ,

There are 7 questions that a tenant can ask to get a feel for the success of their next real estate deal, yet rarely are any of them asked! The tenant and landlord’s dance through the proposal process is one that is contained to RFP (Request for Proposal) responses and the agents negotiating terms on behalf of the principals. Often, once the lease is signed, it is the first time that a tenant actually meets his landlord. That is one hell of an arranged marriage!

During the great recession, the world for landlords was turned upside down. As a result, form leases that had not been rewritten in 20 years had now been completely overhauled. Leases are much longer now than they used to be and the time and cost to negotiate and approve the documents has increased considerably. In”25 Years of Commercial Leasing: What a Long Strange, Cyclical Trip it has been,” a group of commercial lease transaction lawyers in California point out this new complication.

Page 12 of the article states, “The 10 years preceding the birth of the Real Property Law Section, the State Bar of California saw commercial leases expand from a typical six-page office lease, manually typed with carbon paper, to a 30-page lease with a dramatically increased focus on detail and an attempt to alleviate the unknowns and “what ifs.”  After further review, the article goes on to detail how landlords have shifted to having an attorney on retainer draft leases that are more and more complex as a form of protection from certain issues that may arise with the tenant long after the lease has been signed.

After examining the above text, it would appear that the best landlord tenant relationship is one where the lease is negotiated, then put away, and never pulled-out again. But to have such a relationship with your landlord, you must have a great amount of trust. In Dr. Stephen Covey’s book, Speed of Trust, he addresses this type of trust:

“When trust goes up, speed will also go up and cost will go down.”

The inverse is also true.

“When trust goes down, speed will go down and costs will go up.”

In an industry that is primarily concerned about being faster, bigger, and cheaper, trust is a critical component to any landlord/tenant relationship. But when decisions are made based upon responses to RFPs, how does a tenant know if they are entering into a relationship with a good guy? We suggest that you preface all of your RFPs to your future landlord with the following statement and ask these 7 questions.

First, clarify your expectations by making this statement. “Smoots, Tannerbottom and Felderhosen PLLC envisions a “collaborative/partnership” during the negotiation, upfit, and occupancy of its new office. Please provide the following information with that in mind.

1. Assume that it is three years from now, the tenant chose your building, negotiated a lease, performed tenant improvements and has been a tenant for over two years, and you are looking back over the last three years, what would have to happen for the landlord to feel good about your progress? This is the greatest of all open-ended questions. You will know if the respondent is serious about having you as a tenant as well as their plan for you as their tenant.

2. Please describe the ownership structure of “respondent” and the key personnel who would be involved in the negotiation of agreements and the completion of the project. This question addresses the issue of how they will deliver results and keep commitments.

3. Provide examples of comparable projects completed by “respondent”. This question will give you insight into not only their capability, but also their humility.

4. Confirm that “respondent” be willing to work on an “open book” basis with agreed return criteria at the outset. This gets right to the issue of landlord transparency.

5. Please indicate how respondent expects to access and utilize capital to complete the project (including expansion). Anyone in the debt market knows the value of understanding a landlord’s access to capital.

6. Demonstrate financial capability to complete this project. All landlords had a tough time during the great recession, therefore the respondent should have a very clear idea of how they are going to answer this question.

7. Please share your vision for the neighborhood in which your site is located. I like this question because a landlord who knows and cares about the neighborhood in which it is located, is socially conscious and cares about the relationships with its tenants. Also, this is a great question to raise awareness on soft issues such as transportation, proposed access improvements, crime statistics, and the availability of nearby workforce housing.

 

Signing a Lease? 7 Things to Expect from Potential Landlord

January 17, 2014 By in Archives Tags: , , , , 1 Comment

Often, tenants are unsure of the items that a potential landlord may be looking for. The below list should help you get prepared.

1)   Rental Application. Every landlord will require a tenant to complete a comprehensive rental application. Landlords need to understand whom they are leasing to. Landlords will need to run a credit check to verify the tenant is in good credit standing with other credit agencies, because in reality the landlord is lending you the space for a period of time. All landlords should run a credit check in order to protect their investment.

2)   Two Years of Tax Returns, Income statements, and Balance Sheets. Many landlords want to see the past history of a tenant. This can only be done by looking at the tenant’s past income statements and balance sheets and compare those with what was given to the Internal Revenue Service – also known as their tax return.

3) Current Financial Statements. Landlords will also want to review the “most up to date” balance sheet and income statement of a client to make sure the tenant is performing in an acceptable matter.

4) Articles of Incorporation. Landlords would want to see the Articles of Incorporation should the company be incorporated. The landlord wants to make sure it is a viable entity and can enter into a lease.

5)  A visit from your landlord to your current property. Many landlords like to swing by a client current office to get an idea of how he or she might treat the property. It’s important to make sure the tenant’s “current” property is in a neat and tidy fashion in order to give the landlord the necessary comfort level that you will take care of his or her property as well.

6) Potential references. Some landlords will require references should the company financial not be as strong as they would like them to be. If you are unable to provide references, this might be considered a potential red flag to the new landlord.

7)  Conversation with your current landlord. Many landlords will contact your current landlord to verify your payment history. This can be a tricky situation because if your current landlord would prefer you out of “his” property, he or she may provide inaccurate information. Most landlords complete their due diligence before entering into a lease. Landlords would prefer to have a tenant that they feel comfortable with, than to sign a lease with a tenant who could be a potential nightmare for years to come. As a tenant, it is important to live up to your obligations when you say you will live up to them.

I heard of a story where a tenant and landlord come to an agreement and the next step was for the landlord to cash the tenant first month rent and security deposit. The tenant kept stalling and asking the landlord to wait until some specific contingency had expired; the tenant kept moving the date where the landlord could cash the check, which inevitably frustrated the landlord enough to where he canceled the lease. The tenant was in a world of hurt after that circumstance. We believe the reason the tenant did not want the check cashed was that the company was cash poor until a specific date, however no one ever confided in the landlord to tell him the real situation and because of that lack of communication, the company lost the space which dramatically affected its future business operations.

Being prepared and knowing what to expect will greatly speed up the negotiations and everyone will win.

“Signing a Lease? 7 Things to Expect from Potential Landlord” is original content from Mr. Randy Mason, CCIM, SIOR of Commercial Realty Specialists and was posted in the Commercial Property Executive on January 15, 2014.. The Strategic Tenant Advocate has permission to use the article.

Mr. Mason is the Managing Partner for Commercial Realty Specialists. With more than twenty-six years of real estate brokerage experience, Mr. Mason specializes in leasing and selling of office and industrial properties throughout the Orange county Marketplace. He specializes in representing the tenant and buyer side of the transaction, which has allowed him to focus on his client’s needs by being their fiduciary.

Please check out Mr. Mason’s website by clicking HERE.

Taking the Fast Track with Commercial Lease Transactions

May 17, 2013 By in Archives Tags: , , , , , ,

Too often it seems that the true opportunities for great landlord/tenant relations get lost in lease negotiations. However, if all parties work together to “fast track” commercial lease contracts, the benefits lead to:

  • Significantly lower legal fees: If you choose your attorney carefully, “reasonable” attorney fees when negotiating office leases range from $3,500 to $10,000, according to  Kevin Hein, a partner with the Faegre & Benson law firm in Denver. Industrial leases are typically less.
  • Working relationships: Lease negotiations are like the “speed dates” common in the 90’s. You will get to know what it’s like being married to your landlord. Brokers and attorneys often neglect the fact that this dating period sets the tenant up for a long-term relationship with a landlord that is important to your company’s success. How you allow your attorney and broker to act, says a lot to the landlord about what type of relationship he will have with you after the lease is signed.*

Certain steps can be taken to fast track commercial lease contracts for  “win-win” results:

Use your leverage: First, have a detailed Letter of Intent (LOI) that provides business terms and key legal terms you truly care about. It is critical to push to have it executed by both parties before lease negotiations begin. Get it signed before the lease is delivered. We ask that the client’s attorney review the document to ensure that he will not need to renegotiate what has been agreed to during the “dating phase”.

Do not spend attorney fees on a landlord’s onerous lease: A landlord who is serious about tenant service, will uncomplicate matters and engender trust by using a simple lease. Landlords with the reputation of having modern leases and professionals who listen to the tenant’s concerns reap the benefits of having strong broker relationships. If a landlord gives you an onerous lease, do not let your attorney spend hours marking it up. Go back to the landlord and tell him why you feel she is setting herself up for a long and costly negotiation.

A little preparation goes a long way: Hold a pre-negotiation call and invite everyone—attorneys, principals, and brokers—to attend the call. This is rarely done on small deals, but it is extremely helpful. Use this as an opportunity to establish expectations for attorney turnaround time, legal budgets, approval processes and a goal for lease execution.

Develop a partnership framework that involves working with other stakeholders, such as the landlord’s broker and asset manager. They have a vested interest in getting the deal done with you. Having these allies in your corner helps fast track commercial lease contracts. Do not be shy in going direct to the landlord’s broker to ask for recommendations for getting around sticking points. You may be surprised at how helpful he will be.

* As a landlord, when I have to negotiate with an abusive broker or attorney, I think: “What a fool! Why burn bridges when your client will need so much help from the landlord once the deal is done?” Short-term posturing from brokers can establish bad working relationships for a long time.

For more information and to ensure all bases are covered, refer to the Prepared to Win-Win checklist that is available by emailing us at jculbertson@cardinal-partners.com