Even if your landlord and his team has completed thousands of commercial leases and you've only worked on a handful, you can walk away from the negotiating table with a great lease -- and a great deal. It doesn't take luck to win at the commercial lease negotiation game. What it does take is skill. Using a few crucial skills to execute a well-planned strategy is what sets pros apart from neophytes.
1) Start With the End In Mind
Long before you start negotiating your lease, take a step back and figure out what you and your company really need. A need analysis goes well beyond determining how much you can spend and how many square feet you want to occupy, though. Here are four factors to think about as a part of this process:
- Whether you serve your employees, your vendors or your customers in the space.
- What type of access you need in terms of road, rail, public transit and other types of transportation.
- What business units you need the space to serve
- What image you want the space to project
A major part of the space selection process is to project human factors. Ultimately, the best spaces are those that do a better job of serving the needs of your employees and customers. By spending the time and money to analyze what they really want and need, you can select a more suitable site for them and, through them, for your business. Those factors end up determining your space's size and location and your budget.
2) Start Early
If you ask a landlord representative, he might tell you that six months is more than enough time to find a new space. He's right -- six months is enough time for you to end up coming to your landlord, hat in hand, begging for an extension of your existing lease or a renewal.
Getting a new space for your business takes at least a year. In a normal market, it's best to give yourself 18 months or two years in a recession where new construction space can be hard to find or where financing for purchases or tenant improvement work can be unavailable.
Why does it take so long? Let's work backwards. It's nice to have at least a month after construction is essentially finished for testing, moving and for resolving punch list items. Build outs can easily take a couple of months. When you and the landlord have attorneys involved, the negotiating process can take anywhere from one to two months. At this point, we've already spent four to five months.
In a perfect world, your market is filled with empty spaces, you see the perfect one on the first day and the landlord doesn't make you waste too much time negotiating. In the real world, great spaces are harder to come by. You might have to wait for them to come on the market, and you might have to start a few unsuccessful negotiations.
All of that takes time. Furthermore, the more time that you have, the less pressure you feel to find a space. This lets you negotiate from a position of greater strength and confidence and, ultimately, get yourself a better deal.
3) Set Up Record Keeping Regimes
Negotiating a commercial lease is an amazingly paper-intensive process. Between notes of initial discussions, letters of intent, lease documents, attachments, and changes, it can be very easy to pass hundreds or thousands of pages around over a few months. Furthermore, changes can be easily lost of misplaced. Here are some of the documents that you will need to track:
- RFPs -- initial requests for proposals spell out what you need in a space and what you expect from landlords.
- LOIs -- letters of intent are usually short letters that outline the business points of the lease. They serve as the basis from which the main lease document gets drafted.
- Proposals -- once the business terms get defined in the LOI, a proposed lease draft gets circulated.
- Counter-Proposals -- Usually, the proposal needs to be changed to meet the other side's concerns. Frequently, counter-proposals go back and forth, generating more paper and more complexity.
- Amendments -- Sometimes, instead of changing the main document, the sides in a lease negotiation make their changes through amendments. As with proposals, amendments can also be countered.
In addition to all of the official documents, keeping careful notes of what is said and why might not be legally important, but can be useful when remembering what to ask for and what to look for new documents. Using printed boilerplate forms or the "Track Changes" feature in programs like Microsoft Word also makes it easier to recognize when and where a document has been changed.
Ultimately, your computer's memory is better than yours. Using it can help you to ensure that, when all is said and done, you sign the exact document that you negotiated to achieve.
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