About every five years you’ll lease office space. Since the landlord’s goal is to obtain the highest possible pricing from a tenant, it is essential that you prepare yourself for an equal lease negotiation with your landlord. What you do know will save you money.
Hidden lease items cost tenants money over a lease term, such as operating expenses – the cost of operating the building. Your tenant representative can negotiate that the base year be “grossed- up” to reflect a building that is at least 95% occupied. Given the significant vacancy rate in today’s market, lease items such as the utilities, water, supplies, and janitorial could cost you more money in a building with a 20% vacancy instead of a 5% vacancy. A qualified commercial real estate broker will win these lease concessions from your landlord.
Consider these incentive negotiations that your tenant representative can equalize with your landlord: What is the landlord including in these costs? Are these costs solely for the operations of this specific building? How is the floor space measured? Is the computing of the floor area using the standard method pursuant to The Building Owners and Managers Association guidelines? Can the amount of square footage change during the lease term? If not addressed in lease negotiations, office space leases often provide landlords the right to increase the amount of square footage thereby increasing the rent due. Have an option to renew the lease at market? And what is “market?”
Your tenant representative will not overlook major issues when negotiating a “rental rate.” In the body of the lease is “market” simply limited to the rental rate without consideration to concessions of the market at a given time? In today’s tenant’s market rental abatement and tenant improvements are certainly one of many standard “market” items that a wise tenant will address.
Your tenant representative will also address any “holdover” provision often found near the end of a lease document. And any high identity location issues, i.e. of being located directly off an elevator lobby. Can the landlord relocate you? Yes again. This is not in your best interest. Also, a small $.25 increase in rental rate for 5,000 square feet deducts your bottom line with a $75k increase in occupancy costs over a five-year lease. Got tenant representation?
Landlords expect a tenant will be represented and the fee for a tenant’s advocate work is already included in the cost of the transaction; it is a windfall for a landlord if you show up alone. There is a window in time for tenants to set long term occupancy cost in today’s high vacancy market, so don’t miss it. The most powerful tool in negotiating any lease item – market expertise and competition – will save you significant rent dollars and protection in leases that are inherently to the landlord’s advantage.
Michael Coretz – possessing over 25 years as a local commercial real estate broker with national and international networks – possesses expertise in representing tenants during lease negotiations, incentive negotiations, and site location. Whether leasing or buying, Michael Coretz of Commercial Real Estate Group of Tucson will win these vital lease concessions from your landlord.