Hidden Details: Lease Contracts

Written by Lynn Drake, guest blogger for the Business Relocation Resource Center.

Lease DetailsWhen people find out I’m a commercial real estate agent they often sidle up close and whisper in my ear, “Let me tell you, I got such a deal,” and expect me to nod approvingly. Dare I frown? A deal isn’t always a deal.

A gentleman who coordinated real estate for a now-defunct company with multiple properties bragged at a luncheon that he used a scare tactic to beat down the rent price. He would threaten the landlord with an impending bankruptcy, leaving that individual with empty space and a guilty conscience if the rent wasn’t lowered. A couple times the “meager times” approach worked. But he could have brokered a better deal without compromising his ethics.

To be sure, landlords all over the country have been forced to lower rents because prices have fallen through the floor. Many companies folded after the recession, and the rate of new businesses has not kept up with global mergers or the failures of seven-figure firms. Even thriving companies have learned to work with fewer resources. Many have downsized or urged employees to telecommute.

In either scenario, the supply side of space in nearly every town looms larger than demand. The good news for tenants is that bargains are available even in the most luxurious skyscrapers.

Rent price is only part of the equation. If a landlord gives an existing tenant a 10 percent hardship reduction when prices have fallen 30 percent, the negotiator tripped up. Here is another example:

A top entrepreneur had just made a brilliant move by comparing the rental price per square foot against that which other tenants were paying in her building. She hoped this secret information would create a subsequent drop in rent.

Wait a minute. Before approaching the landlord, get more intel. Does that $7 per square foot represent gross or triple net? Is it based on a long-term contract or a sliding scale, with a $7 the first year to compensate for move costs and $14 a square foot ever year after? Is the rental price fixed or does it include management-made improvements? A full build-out in office space can cost anywhere from $25 a square foot to more than $100 a square foot.

Remember to look before you leap. If you want to get the very best deal in town, go out and get bids for similar space in the same city or similar areas. Base your bid on square footage, multi-year contract and build-out. If you’d rather concentrate on your core business, get a professional who understands the jargon and the fine print to represent you.

How much does representation cost? Most of the time it costs you nothing. Landlords absorb the costs. You could ask the other question, how much will not being informed cost you?

 


Lynn Drake

Lynn Drake is president of Compass Commercial, LLC – ITRA Global, a real estate firm representing tenants and buyers of commercial real estate globally.

Lynn became a commercial realtor in 2001 after 15 years in corporate real estate during which she initially managed and leased industrial real estate across North America for Central Transport, then directed real estate and facilities for 1,000 Kelly Services branches in the United States and Canada.

 

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