Original article posted in Inside Tucson Business here.
Landlord brokers generally do a great job representing landlords. That’s what they’re paid to do. So don’t be surprised if the advice that landlord brokers give you don’t serve your interests. Here are five myths about dual representation in commercial real estate transactions.
1. “We can get you a great deal because we have a relationship with the landlord.” If your company has the credit-worthiness that suggests you can meet your lease obligations, then any landlord would love to have you as a tenant.
When a broker entices you with claims of a special relationship with the landlord, ask whether that relationship will affect the broker’s obligation to represent you.
What your company really needs is a broker who will represent your interests, not the interests of a landlord.
2. “Don’t upset the landlord.” You’ll often hear from landlord brokers that you shouldn’t negotiate aggressively, demand that landlords comply with lease terms or insist on the rights provided in the tenant’s lease. My experience is that landlords respect tenants who know their rights and pursue their interests in a business-like way.
While a tenant often needs a landlord’s cooperation, a landlord also needs a tenant to help pay the mortgage. For the landlord, it’s generally cheaper to keep a current tenant satisfied than to pay the cost and possibly lose income from a dissatisfied tenant who moves out.
3. “Hurry up or you lose out.” Landlord brokers push tenants to get a deal done quickly. They present a sense of urgency that if you don’t commit to a space now, somebody else will take it.
Rushing into a deal is a big risk to you. You could end up neglecting comprehensive due diligence or overlooking costly drawbacks in a building. You might fail to properly analyze the risks and costs of a draft lease or end up signing a transaction that can become a serious liability to your company.
4. “The landlord’s draft lease has standard terms.” So-called “standard terms” invariably has pro-landlord terms because leases are drafted by landlords.
“Standard terms” often include tenant budget-busters like operating expense loopholes, vague landlord performance standards and lack of audit rights.
Don’t be pressured into accepting “standard terms.” A lease negotiation should be driven by your business objectives.
5. “Focus on rent and workletter.” Many tenants imagine they’ve locked in their biggest costs by shaking hands on these two terms. However, there easily are 18 or 19 significant non-rent costs in a typical lease. Landlord brokers likely won’t identify these costs.
When you are interviewing for a commercial real estate broker, ask how well the broker has protected tenants on such issues as analyzing sites, evaluating landlords, negotiating leases, monitoring build-outs and auditing billings.
Tenant representative Commercial Real Estate Group of Tucson can help you sort out what you need to know in order to wisely choose the broker who will work for your interests. Contact us at 299-3400.