Thinking Twice

How to Make Quality

Decisions as a Tenant

1) Start Early: This probably means now

Finding the right office space for your company takes

time
Be willing to start looking at least 3-6 months before
you are ready to occupy space
Markets change
Rates change
Spaces come and go
Negotiations, preparation of documents , and making
tenant improvements take time

Start Early: This probably means now

A quick and abbreviated glance at the leasing process:
Survey the market
Identify 6-10 properties you are interested in touring
Set up and tour 6-10 spaces you have identified
Narrow list down to 2-4 properties that fit your need
Tour these 2-4 properties again
Send out Requests for Proposals (RFPs) on 2-3 properties
Negotiate business terms on RFPs to determine best deal terms
Agree in principal to terms of RFP and move to Lease document
Have landlord draft up a lease with agreed upon business terms
Agreed upon business terms become very long and very legal lease

document
Have lawyers review very long and very legal lease document
Make changes your lawyer recommends and send back proposal
Negotiate until you have reached an agreement or deal falls apart
Move or start negotiation process all over again
This was the abbreviated version

2) Know Your Lease: Or at least what file

cabinet its in
Know where a copy of your lease is and know whats in it
Lease Summary Document
Know and understand when your lease term ends
Know and understand if you have options to renew your

current lease
At what rate? If market rate, how is it defined?
For how long?
How many days notice do you have to provide to
landlord of your intent to exercise option?
Know and understand any language in your lease related to
Right of First Refusal or Right of First Offer on additional
space in the building
Know and understand if you can terminate your lease early
and if so, what are the penalties involved if you terminate?

3) Have representation: Here comes the

shameless plug
A good broker is worth every penny that your current or future

landlord will pay him or her

A good broker:

Knows the market

Knows the rates
Knows the spaces
Knows the brokers
Knows the owners and landlords
Knows what a good deal looks like
Takes a complicated process and makes it look relatively easy
Always negotiates with your best interest in mind
Saves you time
Saves you money
Reads all of the documents word-for-word

The Myth of Getting a Better Deal Without a Broker

4) Prioritize: Things are never equal

Know what you want before you go looking for it
What is the most important thing to you and your company?
Do you care most about?
Location?
Economics?
Amenities?
Floor Plan or Layout?
Rate these four in order of importance
Do not waste time looking at spaces that do not meet your

number one requirement

5) Rates: Never what they seem

Triple Net v. Net vs. Full Service vs. Gross vs.

Modified Gross Rates: Whats the difference

and who does it matter?
What does the rate include?
What doesnt the rate include?
Are there annual bumps in the rate?
What is the rate on any option included in the
lease?
What is the rate on holdover rent?

6) Operating Expenses:
Management matters
Before you sign a lease, have your broker ask to see a

copy of the expense statements from the previous

three years.
Have expenses been increasing from year-to-year?
If so, find out why?
Ask to see operating budget for the current year.
What is the CAM or Load factor for the building?
How does the Landlord define operating expenses?
A building that is poorly managed is a bad building.

7) Base Year: Much more important than

you ever thought
In most gross leases, the rent includes the costs of

providing all of the normal building services (taxes,

insurance, and general maintenance and upkeep), and
the tenant is required to pay the landlord for its pro-rata
share of increases in the costs of such services over an
established base year (typically first year of lease term)
Because the Base Year is used each year to measure cost
increases, it is imperative that the Base Year be
reflective of what it normally costs to run the building.

8)Upkeep and Maintenance

Whos responsible for the following:
HVAC service, maintenance, and repair
Roof
Foundations
Plumbing and Electrical Systems
Light bulbs
Landscaping
Parking Lot maintenance
Snow/Ice Removal
Is the property professional managed? If not, who does Landlord have taking care

of the property?
Dont be afraid to do a credit check on your Landlord. Can he or she afford to make
any necessary repairs to the property? Check for tax liens, mechanics liens, etc.?
Attornment Clause in Lease

9) TI: Not a kind of calculator

TI = Tenant Improvement
Paint, Carpet, erecting walls, taking out walls, etc.

What sort of TI Allowance is the Landlord offering?

If TI is not being offered, is Landlord willing to discount rate

or offer free rent for any work needing to be done to the

space?
What interest rate does Landlord amortize TI costs in

excess of the allowance?

Will Landlord turn-key improvements to the space?
Is it cheaper for you to do the work yourself?

10) Numbers: Crunch em

Go analytical early
Know whats in the lease and what you are and are

not paying for

If you are paying for utilities, have your broker find
out what average utility bills have looked like for the
building
Rates are not always the best indicator of a good deal.
Do a NPV analysis of the different deals you are
considering

Conclusion
If you ignore enough little problems with a

lease, they become big problems costing you

and your company thousands of $$$$$.
If you dont know what you are looking for, you
will not know that you are getting a raw deal.
As my childhood hero G.I. Joe once said,
Knowing is half the battle.