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Entries Tagged as 'Lease Negotiations'

The Tenant Improvement Workletter: Keys to a Successful Office Space Build Out

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When leasing commercial office space to house your organization, it is rare to find a space that is exactly perfect for your needs. Often alterations, called office tenant improvements, need to be made to the facility. This requires negotiation between you, your office tenant representative you selected to help you get the best possible lease, and the landlord.

It is important that tenant improvements never be agreed upon using a handshake arrangement. The improvements involve costs and legalities, therefore a tenant improvement workletter is developed defining the agreement. The workletter is a legal document created for your protection and some very important concerns should be precisely covered in the agreement.

Questions and Issues Important for Inclusion in the Workletter

·         Is the landlord or the tenant responsible for doing the work to the office space?

·         Which party chooses the contractor and space planner and how exactly will these parties be selected?

·         Who pays for what expenses involved in altering the commercial office space being leased?

·         Is the space involved in the alternations usable or rentable square footage and how many square feet are involved?

·         What relationship does the rent commencement date have to the tenant improvements and construction?

·         What if there are delays caused by the tenant? What if delays are caused by the landlord?

Types of Workletters

Turn-Key: This type of workletter is established before lease signing and the landlord agrees to pay the improvement costs per approved plans. Usually the improvements are completed before the tenant occupies the office space.

Landlord Workletter: In this situation the renter is given an allowance by the landlord to make changes. If there are costs overruns, the tenant is responsible. Typically the lease is signed before this type of workletter is put into effect. The landlord maintains some control over the improvements ensuring they meet approved plans.

Tenant Workletter: This type of workletter may or may not provide an allowance from the landlord. Basically the tenant controls the improvements and accepts the cost risk. If an allowance is negotiated, the tenant is responsible for all costs over the allowance.

Selecting the Best Workletter for Your Office Space

It is important to go over the benefits and risks of each type of workletter with your Office Finder tenant rep before determining which types of workletter is best for your specific situation. It all depends on the work you need, how you want to manage the work, and what terms the landlord will agree to. Your office tenant rep will help you negotiate the best possible deal for your tenant improvement workletter as well as your office space lease. 

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By: James Osgood

Lease Negotiations , Office Leasing Tips , Office Rental , Office Space , Tenant Representation

Successful Negotiation Tactics for Your Office Space Lease: Part 1

When you lease commercial office space, the process included negotiating with the property owner to establish what will be contained in your lease.  Having a basic knowledge of the pitfalls to avoid and the opportunities to save money will make the task much less arduous for you and your tenant representative.

While landlords are reticent to lower rental rates, stating that the property is valued high and has a high level of prestige, there are other costs embedded in the lease that are open for negotiations. Include a well-qualified tenant representative in all phases of negotiations. In fact, the tenant rep may be the person who located the perfect property for you.

Once you’ve located the perfect office space, the tenant rep will send the landlord a letter of intent. This is a non-binding statement that tells the landlord what space you want to rent and how much you want to pay. While other elements are included in this letter, they are all open to negotiation.  This letter may end up being revised several times after going back and forth with the landlord to reach an acceptable agreement.

Lease Term: The length of time you wish to lease the office space can be anywhere from one year to a decade or more. The basic lease probably states a specific lease term, perhaps five years, but you can required that period be changed to suit your needs. If you are planning to do a lot of improvement to the property, you may want a long lease, whereas if you are a growing company, you may want a much shorter lease to allow you to readily move into larger office spaces if needed in a few years. Be sure the terms regarding lease renewal are also clearly stated.

Beginning Lease Date: Sometimes commercial office space requires major construction or tenant improvements before you move in and begin doing business from that location. Be sure that you don’t have to begin paying rent until you occupy the space.

Percentage Rent: Some leases contain a clause regarding percentage rent, meaning that once a business opens and their sales reach a specified point, a percentage of the gross sales go to the landlord, increasing the overall cost of rental. Depending on the type of business you operate, you may wish to ask your tenant rep to help you negotiate this clause out of the lease or at least make sure that you will have met the specified goal for 12 months before paying any percentage charge. This clause is more likely to impact retail businesses and service or manufacturing operations.

Rental Incentives: Some commercial office spaces offer rental incentives such as one or more months rent free upon signing a lease of a specific duration. Even if no rental incentives are advertised in the office space listing, you may be able to negotiate some incentive by simply asking the landlord. If the building is completely occupied except the space you are considering leasing, then it is less likely that the landlord will give this concession, but if the building needs occupants, the landlord may be very flexible about offering incentives to establish you business in that location.

Tenant Improvements: Another concession sometimes offered by a landlord to new tents is an allowance to make changes to the office space layout. Your tenant rep will be a big help in negotiating changes to the office space. Perhaps you want interior upgrades, parking lot improvements, or other changes, you want to include these requests in your letter of intent and discuss them at length with the landlord. You may find that the landlord will pay for all improvements in order to get a long term lease established. The landlord might give you an allowance and ask that you bear part of the expense; this makes negotiating this area particularly sensitive because you want to get the improvements at little or no cost to you. If there are no improvements needed, use this fact to help negotiate a period of free rent instead.

Exclusivity Clause: Some types of businesses find it important to avoid having a competing business in the same area as their operation. You may negotiate with the landlord to guarantee that a business of the same type as yours will not be allowed to rent in the same building. If the landlord owns a large area of building near your office, you may even be able to establish that no competing business will be allowed to rent from the landlord in a specific radius. This often applies to businesses that sell specific services or provide retail products.

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By: James Osgood

Lease Negotiations , Office Rental , Office Space Negotiations

Office Space Leasing Is Not A “Do It Yourself” Project

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People often think office space leasing is not much different than renting a condo, apartment or house. Having leased residences in the past, the business owner may think that doing it alone is the way to go. This can be a huge mistake!

You are an expert on your business, but you don’t often deal with leasing office space. Probably no more often than every three to five years has your business grown to the point you have rented larger office space or have decided to go for a better location. Landlords are experts on leasing office space because they do it all the time. You need an expert in office space leasing on your side, too. Choose a well-qualified tenant representative to allow you an even playing field with negotiations.

Do not think that involving an office tenant representative in the office space leasing process will cost money and result in paying more rent. This is a complete misconception. In fact, the cost of services of a qualified tenant representative is normally included in the asking price whether you choose to use the services or not.

When negotiating an office space lease, an office space tenant rep will save you money and make certain you don’t make any costly mistakes. The confusing verbiage of the lease can easily be explained by the tenant rep of your choice. After all, the landlord most likely has a commercial broker listing agent to represent him or her. The landlord’s agent will try to ensure the landlord gets the best price for the property possible. Why shouldn’t you have a qualified tenant rep by your side as you enter into negotiations for an office space?

Even if you already occupy a great office space, when it comes time to renew the lease, your tenant rep can help you get the best renewal lease possible. If you are considering vacating you current office and moving into another location, a good tenant rep will help you locate the perfect space and help you negotiate the new lease.

Entering into negotiations with a tenant rep will save you money in several ways. The office space leasing process is quite complex and often confusing. The decisions you make will impact the price you pay each month for the space in which your business resides, resulting in an impact on your profits. The numbers and line items in the lease can be translated by the tenant rep into simple language you can understand, allowing you to make sound decisions during negotiations.

The knowledge and experience of the tenant rep allows him or her to have a grasp of current asking prices and lease incentives. With the guidance of an expert tenant rep, you have the subtle leverage you need when negotiating the lease and any changes you find necessary such as tenant improvements. Also, the tenant rep will make sure you have the documentation you need to protect yourself and your business during the duration of your lease.

Going it alone in the office space leasing process simply doesn’t make sense when there are qualified tenant representatives available to help you and it won't cost you to obtain their services. There are a few questions you need to ask when choosing the right tenant rep for your needs:. These include:

  •    Can you commit the time necessary to work with me on negotiating the lease?
  •    Do you primarily ask as a tenant advocate as opposed to a real estate listing agent?
  •   Are there any potential conflicts of interest if we work together on this negotiation process?
  •   What experience do you have in negotiating leases such as the one I am considering?
  •   During the last 3 years, how many tenant representation transactions have you handled?
  •   What is your philosophy on office space lease negotiations?
  •   Do you enter into an Exclusive Representation Agreement when working with a tenant?
  •   How will you be paid? What commission do you expect to earn?
  •    What if I am not happy with your services?

If you want to lease the perfect office space and pay as little rent as possible while enjoying the maximum benefits and incentives, do not attempt to negotiate without a tenant rep’s involvement. The tenant rep’s job is to ensure your interests are protected and get you the best possible deal. It just makes good sense to have a local commercial broker who has an excellent reputation for helping get tenants the best possible lease benefits to assist you with the office space leasing process. Commercial property leases are simply not “Do It Yourself” projects; Office Finder services are readily available to provide the expert experience you need

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Top 3 biggest mistakes office tenants make (on SlideShare.net)

Lease Negotiations , Office Leasing Tips , Office Rental , Office Space Negotiations , Tenant Representation

Important Questions to Ask before You Lease Office Space

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Choosing to lease office space for lease is a big decision. The entire process can be quite confusing and it is easy to get a less-than-perfect office space deal if you don’t know what questions to ask and what certain terms mean to your bottom line.

What does $XX.XX/SF mean when stated in a lease or advertisement for office space? The cost stated usually refers to the yearly lease cost per square foot. An example would be 1,000SF of office space quoted at $10.00/SF would mean a rate of $10,000 per year or $833.33 per month. Although, in some markets it is based ont eh monthly cost. Make sure you know!

What does Rentable Square Feet mean to me? The term rentable square feet refers to the total square feet of office space used to calculate the rental rate. It may include an apportionment for the lobby, halls, and other common areas in the building that are available to you to use along with all the other building tenants.

What does Useable Square Feet mean? This is the total square footage inside the walls of the specific office space you are considering leasing; the acutula square footage you get to use. It refers to that area that is for the sole use of the tenant and does not include any sort of common area. Basically, this is the amount of office space, expressed in square feet, that you will be leasing as private office space in which you can conduct your business.

I was presented a lease that has the term “CAM charges” in it. What does this mean? The acronym CAM stands for Common Area Maintenance and CAM charges refer to the cost of services and charges to maintain common areas, including any parking areas owned by the building owner. This can include landscape services, common area lighting, parking lot maintenance, cleaning service for common areas, or even snowplowing if that is needed. The actual expenses are shared by all tenants and are quoted as CAM charges. This is calculated as $XX.XX/SF with the SF being equal to the rentable square footage of the leased area.  These charges are usually paid monthly based on the estimated yearly cost. At year end, the actual CAM charges are calculated and any refund or additional payment is settled with the tenants.

What is NNN when appearing in a lease rate? The term “NNN” refers to any additional actual expense items incurred by the building that are split between all tenants. This may include insurance, property taxes, or CAM if CAM is not included separately. It may be called “Additional Rent” rather than NNN. Be sure to ask exactly what is included in the NNN because it can differ from landlord to landlord. It probably will not include any utility costs except that used by the common areas.

How utility costs are calculated and are they included in the rent? In some smaller office spaces, the cost of utilities may not be calculated separately but in larger spaces, the tenant often has to establish their own separately metered utilities. In some cases, the landlord has all unities metered and the tenant is billed for a share of the total utilities based on the size of their office space.  Be sure to inquire about how utilities are billed and exactly what you are responsible for paying.

What does Gross Rent mean? The term Gross Rent means the landlord is paying all expenses outlined as NNN expenses and the tenant only pays the Gross Rental amount stated in the lease. The utilities may or may not be included in Gross Rent, so be sure to ask.

Can I get a short lease to try out the office space? Most landlords offering leases on commercial office space will not consider less than a one year lease. Some require two or three year leases as a minimum. In general, the longer the lease, the more valuable it is to the landlord and the easier it will be to negotiate what you want.  Don’t plan on less than a one year lease.

I love the office space I found but there are a few things in the layout that need to be changed. How does this work?  The layout of an office space varies from building to building and seldom do you find the perfect lay out. The landlord is likely to be reluctant to spend money on a tenant requested change. It is traditional that new paint, carpet cleaning, and general area maintenance be performed by the landlord. In some cases tenant improvements can be negotiated at the landlord’s expense, often on the longer term leases. In other cases the tenant may negotiate the right to alter the layout at the tenant’s expenses. 

Your best bet is to use ther services of an Office Space Tenant Represenative who will help you through the maze at NO Cost to you, making sure you avoid costly mistakes.

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By: James Osgood

Lease Negotiations , Office Rental , Office Space , Office Space Negotiations

The Big Unknown: Office Space Operating Expenses

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One of the things that can complicate your budget for office space rent is operating expenses.  There are two ways your landlord can handle these costs.  The first is simple – if it’s $12.00, he charges you $12.00 or $1.00 per square foot per month and you are done.  This is known as a triple net lease (NNN).  The other method is over a Base Year.  This means that in Year One of your lease that $12.00 is included in your rent number, but you’ll pay the difference in subsequent years.  So if your operating expenses increase by $0.25 in Year Two, you’ll pay that difference either in a lump sum or in 12 installments – it depends on your lease.

What do these two methods have in common? Uncertainty... read more

Source: OfficeFinder Miami Member

 

 

Lease Negotiations , Miami Office Space , Office Leasing Tips , Office Space , Office Space Negotiations