The right office space has a profound impact on how your business functions. It contributes to more efficient operations, better employee mood and the ability to accommodate growth. However, even once you have found the ideal space, one major obstacle still remains before you can open for business – negotiating the lease.
This is one of the most important steps in the leasing process. You want to be sure that you are getting a fair deal that is mutually attractive to both you and your landlord. This is all the more reason to have tenant representation to ensure your interests are equally represented. Still, many people forgo tenant representation and as a result have found themselves in some undesirable circumstances.
There are a myriad of things that could occur without tenant representation. Here are just a few of the most common dangers of not having an expert on your side when negotiating your lease.
1. Leasing too much space – A tenant representative will assist you (along with a design professional) in calculating your actual need for space and determining your particular layout needs. It’s easy for your eyes to be bigger than your budget. While that huge corner office looks great, it may also be more than you need and can afford right now. A tenant representative will help guide you with how much square footage you actually need at this time and negotiate this for you on your behalf.
2. Missing valuable opportunities – A professional tenant representative can identify a property that you may have overlooked, but that offers you what you need and for lower rental rates. Experience and expertise are two valuable sets of skills that tenant representatives brings to the table, giving them the ability to find hidden gems you might miss out on otherwise.
3. Paying higher than market rental rate – Tenant representatives stay current on market rates and know what an appropriate price is based on different factors of the property. This same expertise would take you hours of research to develop and may still not provide you with all the information you need. Additionally, tenant representatives use the market rental rate as leverage for negotiating fair prices.
4. Paying higher than market effective rental rate – In addition to the market rental rate, you must also take into consideration the inducements and incentives that are being currently offered in the market. These impact the true rental rate (or your rental rate calculated after such perks, like 6 months of free rent, are factored in to the life of the lease). A tenant representative will know what other spaces are offering as incentives and be able to use this as additional leverage for securing you a similarly attractive deal.
5. Understanding the difference between useable and rentable square feet – In a nut shell, useable space is what you personally occupy from wall to wall. Rentable space includes your useable space PLUS any common areas, such as lobbies, restrooms, storage rooms and hallways that are shared with other businesses. A tenant representative will educate you on the difference between the two and ensure that your lease is structured with the appropriate definition so that you are not taken advantage of.
6. Understanding the components and costs of a CAM charge – Common Area Maintenance (CAM) charges are billed to a tenant in addition to the cost of rent. They cover work performed on shared spaces, such as lobbies, bathrooms and hallways that include duties like cleaning and repairs. Think of it almost like a Home Owners Association (HOA) fee, but for commercial office space. A tenant representative knows to inquire about these costs and take them into account for your overall budget.
7. Understanding lease clauses – There are many lease clauses that are written in legalese. Two clauses that are common to most commercial leases are attornment and non disturbance. An attornment clause ensures that a tenant continues paying rent to any new landlord throughout the remainder of the lease term, even if the property is foreclosed or sold. A non-disturbance clause gives a tenant the right to continue occupying the leased premises as long as the tenant is not in default, even after the property is sold or foreclosed. Both of these can be complex and confusing to someone who is not experience with legal terms, so it is important that you have tenant representative and a real estate attorney to advocate for your best interests before signing a lease with or without these clauses.
Have you personally experienced any of these pitfalls when signing into a lease? Share your story by commenting below!