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Selecting space and negotiating the most attractive leasing deal are complex, time-consuming tasks – laden with financial and legal pitfalls if ignored, overlooked or misaddressed. Particularly with commercial real estate, such pitfalls can multiply when a prospective tenant undertakes the process without the benefit of an experienced, knowledgeable leasing professional acting as their exclusive tenant representative.

It’s not like renting your first house or apartment, where tenants have little bargaining power, where lease terms are “standard” (often regulated), and monthly rent and carrying costs are “gross”, i.e. predictable. Unlike residential real estate, buying or leasing commercial real estate has fewer consumer protections, and (beyond zoning and permitting), transactions are pretty much “arm’s length” … meaning, you’re entirely on your own! Indeed, commercial leasing has its own peculiarities, nuances (jargon), hidden or ambiguous costs, and sometimes onerous lease provisions that need to be unsurfaced, translated, and effectively dealt with beforehand.

For example:

• How much of the rent is for actually “usable” (exclusive) space, versus “rentable space” and areas shared with others? How are such spaces measured? Prorated? Even the slightest variance in measurement can mean thousands of dollars in rent over the entire lease term.

 

• Are the common area maintenance costs (CAMs) shared equally among all tenants, or based on actual or estimated usage by individual building occupants (hot water, parking, heating and cooling, for instance)?

 

• What’s included in these CAM costs? What constitutes “maintenance?” Are administrative costs subtly included (staff salaries, on-site or off-site office space, for instance)?

 

• What about potentially “big ticket” items, such as repaving the parking lot, renovating the lobby, replacing the roof or HVAC, or complying with new governmental regulations that could crop up in the future? Will there be assessments? How are they allocated?

 

• Are leases cancelled, cancellable, suspended, or still in effect in the event of fire, casualty, or landlord insolvency? Are rents still due? What types and amounts of insurance are required, business interruption coverage, e.g.?

 

• Is the lease automatically renewable? For how long? At what rental rate? Are cost of living increases built in?

 

• Can competing businesses also rent space within the same complex? Similarly, are you restricted from opening stores or outlets nearby?

 

While avoiding a myriad of legal and financial disasters should be reason enough for not even trying to lease on your own, there are positive (profitable) reasons for engaging a tenant rep to protect your interests:

1. Uncovering economic opportunities – A good tenant rep knows the market inside and out, both locally and regionally; far beyond the hyped-up charts and graphs proffered by the local chamber of commerce. Professional tenant reps are human bloodhounds; taking more than cursory time to “sniff out” (get to really know) their clients and businesses, its strengths and shortcomings, current and future staffing needs, new products or services, growth plans … its history, corporate “style” and culture. By knowing most all of this upfront, a good tenant rep can then narrow (or expand) his or her research (and search) – probing deeper and deeper into the market for potential properties and space, while mindful of economic and industry trends that could affect the immediate, intermediate and long-term viability of the area and proposed leased space. Ideal (preferred) locations might not even be on the market, but could be made available with persuasive (persistent) inquiry, and the right (serious) offer. Tenant reps utilize proprietary databases, belong to professional networks, and regularly prospect; continually gaining “insider” market intelligence, while amassing an ever-increasing client and referral base.

 

2. Being your advocate – commercial leasing usually entails intensive negotiation as to specific lease terms, landlord concessions, tenant improvements, etc. In addition, prospective landlords will more than likely need to be “sold” on you, your experience, financial strength, business plan, and other important background information. Having a skilled third-party presenter and communicator on your side helps ensure your assets, attributes, and advantages are more fully and positively showcased. Having a skilled advocate on your side makes certain that all of the parties’ questions or concerns are clarified and resolved. And because YOU are a client (not a customer), the tenant rep has your interests front and center!

 

3. Saving you time and money – A prospective new tenant should ask (and answer) these questions before venturing into a potential “no man’s land” for commercial leasing:

• Do you have the time and expertise to research the real estate market, including properties that are currently available as well as those becoming available in the future?

 

• Do you intimately know the market, effective leasing rates and inducements being offered?

 

• Do you have the time and expertise to deal with different brokers and landlords, while handling other job responsibilities?

 

• Do you know how to use real estate to improve the financial and competitive position of your corporation? Real estate costs normally equate to some 25% to 40% of a corporation’s overall budget.

 

• Do you know that the quoted rental rate of your building most always includes brokerage fees? If you do not use a tenant representative, this fee will go entirely to the listing agent (landlord’s advocate) for your building.

 

If the answer to any of these questions is “no,” you need a tenant representative, working in tandem with the company’s management team.

Working together, the process of choosing a new site, negotiating a lease, and concluding a “win-win” transaction should be simpler and “win-win.”