Negotiating an Office Lease – Must Someone Always Win?

By Doherty • March 29th, 2011
MarketWatch

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According to the website for Marketwatch, consumer sentiments concerning the economy have remarkably risen to their highest point since June of 2010. It would appear that consumer confidence in the U.S. economy has been slowly rising and that trend is expected to continue with strong support for economic growth. Even with an optimistic economic growth outlook, this upswing has not yet been reflected in better lease options for business tenants.

It is important for any tenant to pay close attention when entering into a contract with a landlord. Although there is a more positive outlook about economic growth, there is also still uncertainty in the business forecast. Companies will be attempting to focus on this uncertainty with corporate strategies such as more efficient use of existing office space, downsizing in general and paying closer attention to an office lease.

A Negotiations Strategy

Whether renting space for the first time or renting for some time, when it is time to either begin or re-sign a contract, the first step in protecting business interests begins with negotiation. This process can be complicated, so a good strategy needs to be in place so that when the time comes for negotiation with the landlord for office space, the advantage will be with the leasing party. A good strategy for winning when it comes to negotiation includes: preparation; clear definition of needs; stay on track with the important issues; and be willing to be cooperative in the negotiations process.

First Step: Preparation

The first strategy for successful office space lease negotiations is preparation. Be familiar with the common lease terms. These terms may include words such as: lessor, lessee, C.A.M. (or common area maintenance), fully serviced lease, gross, net, double or triple net lease, gross square foot, HVAC (abbreviation for “heating, ventilating and air conditioning”), turn-key, build-out, etc.

Preparation may also include doing research on prospective office space. Are there other companies interested in the same location? Does any other potential lessor have a better position for negotiating with the landlord? Has the space being considered been vacant for a long period time? Of course, the goal of every business owner is to close the terms of the contract to their advantage.

Second Step: Identify Needs

The second strategy for advantageous lease negotiations is to always clearly define the needs of the business. Does the office need to be near to the lobby? What maintenance costs for use of the lobby will have to be paid? Although they may be secondary, how important is the use and proximity of such facilities and amenities in relationship to the office space?

It is also important to be aware of certain terms in a contract that a landlord may insert. Listed below are some of the terms that may be used in a contract which, although some may be considered as “standard language,” are actually negotiable terms currently set in favor of the owner:

  • Terminating the lease contract at the owner’s convenience.

  • Passing on to the tenant, without limitation, any increased building operating costs.

  • The tenant being obligated to pay any tax increase if the landlord sells to another owner.

  • Requiring the business owner, rather than just the business, provide a personal guarantee for the rent payment.

  • Subletting of office space severely limited or prohibited.

  • Upon contract termination, responsibility for restoring the office space to a certain condition belongs on the tenant.

Third Step: Be Attentive to Details

The third step for successful lease negotiations is to stick to the subject at hand. This will greatly help keep you on top of the negotiations. Be attentive, because the owner could possibly bring other factors into the negotiations that are irrelevant to any particular business needs and does not need to be included in the contract.

Fourth Step: Maintain a Cooperative Approach

The fourth and last step to positive lease bargaining is to always be cooperative in the process. Sometimes and in some ways, it is important to succeed; at other times, coming to a mutually beneficial agreement can be considered just as successful. Both sides need to feel that they have been advantageous in the lease negotiations. This can only ensure a good, long-lasting relationship between the tenant and the landlord and both sides feeling as if they have been successful!

 

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