Tenants often determine the success of a lease transaction by the price difference between the initial landlord’s advertised rental rate and the executed, contractually negotiated, rental rate. However, by focusing exclusively on the rental rate, a tenant actually stands to lose much more than this negotiated difference.
Among the 40-50 pages that make up a typical lease document, there are at least 100 negotiable items that can lead to significant monies for, or extracted from, a leasing tenant. These range from modest ones such as monthly parking fees and rooftop-access rights to more material matters such as sublease rights and termination options. To maximize savings, tenants must negotiate all facets related to their specific circumstances. Below we have provided just a few items, other than rent, that will affect your bottom line:
- Accuracy of space needs assessment. Is the assessment of your space needs accurate? For instance, are you sure that you need 5,000 square feet over the five-year term, or could your space be restacked more efficiently to utilize only 4,500 or even 4,000 feet? What about the potential for expansion or contraction over the lease term?
- Base-building conditions. Have you identified the deficiencies of base-building conditions when comparing alternatives? If the owner is not held responsible, what is the tenant’s cost to upgrade mechanical, electrical, or fire/life safety systems? A seemingly fair comparison of two buildings with the same quoted rent is not truly comparable if one requires additional expense for base-building upgrades.
- Tenant improvements. How much of a tenant improvement allowance will you need to build out the space to fit your needs, accounting for all non-construction related costs? Knowing this is essential to accurately negotiating tenant improvement dollars. Is the tenant improvement allowance offered on usable or rentable square feet? If based on rentable square feet, you will have approximately 12-18% more funds at your disposal. If you are using project management services, you can also negotiate the building owner’s project administration fees.
- Realistic occupancy date. When can you take occupancy? This estimate must account for all factors, including scheduling of design, permitting, construction, furniture delivery, technology installation and all other relevant vendors’ work.
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Tenants often determine the success of a lease transaction by the price difference between the initial landlord’s advertised rental rate and the executed, contractually negotiated, rental rate. However, by focusing exclusively on the rental rate, a tenant actually stands to lose much more than this negotiated difference.
