As a real estate attorney, I am often asked by tenant-clients, “What can I do to lower costs in negotiating my lease?” While the commercial leasing playing field is often wildly skewed in favor of the landlord, here are a few pro-active ideas to return some balance to the relationship.
First, invest some time and energy in selecting your broker.
A broker often sets the tenor of the leasing process – for better or worse. An enthusiastic, knowledgeable broker who is available when you call is an essential part of your leasing team. There is some potential for a divergence of interests: a broker is usually paid by the landlord and a disreputable broker may push for unnecessary tenant concessions simply to get the deal done (so that commission comes in). However, a tenant-protective broker can provide market-area and general knowledge that will lend credibility to a tenant’s positions in the lease negotiations.
Next, do the best you can to have a detailed and customized letter of intent (LOI).
A detailed LOI is by far the best tool a tenant has to initiate a beneficial negotiation process with the landlord. In negotiating the LOI, both sides will then be clear about basic lease terms. The LOI negotiations may possibly expose differences in positions regarding crucial aspects that otherwise could be deal-breakers later. Even more importantly, you will have an excellent gauge of the landlord’s positions and cooperation (or lack thereof) very early in the process. A strong LOI will mitigate having to assume the landlord understands your business’s special sensitivities and is committed to fostering a working relationship as lease negotiations proceed.
Finally, you should review a draft lease before your legal counsel.
Your initial review of a draft lease should include your liberal comments about issues, discrepancies, and comments important to you and the use of the space. You should also have your broker, IT staff, insurance broker and space planner/architect, as needed, review the draft lease. Your broker is well positioned to champion tenant advantages concerning market-area issues such as tenant concessions on renewals and area-specific treatment of certain leasing aspects like assignment/subleasing. And, your insurance broker, architect and IT staff will further fine tune the lease before you spend a single legal dollar on the lease review process. This initial review will give your attorney valuable input regarding the particular needs of your business for the leased space. Your attorney’s expertise about the legal ramifications of the draft lease then will add value to an already improved lease. The result — a more comprehensive and customized lease at a lower legal cost.