Apr 25, 2018

Five Steps to Due Diligence on Your Next Lease

By Don Catalano


Five Steps to Due Diligence on Your Next Lease
When you sign your next office lease, it's important to truly understand what you are taking on. The process of understanding the property, the terms of the lease, and the way your tenancy will work is called due diligence, and doing it properly will save your company from making many mistakes while also setting you up to take maximum advantage of your space.


1. Build a Team

Unless your company has an extensive internal corporate real estate department with attorneys, brokers, market experts, architects and engineers on staff, the best way to start due diligence is to set up the team of experts that will guide you through the process of finally considering your lease. Usually, a skilled tenant rep broker and a real estate attorney are the cornerstones of that team, but it could include other types of experts as well.


2. Gain Market Expertise

Like step one, this step can start before you have a specific lease offer to analyze. Market expertise has two parts. First, you want to understand the area well enough to know if it is a fit for your business today and to project whether or not it will work in the future, as well. Second, you want to understand the leasing market so that you are in a position to make reasonable offers on spaces and to know if the landlord's responses are in line with market norms.


3. Understand the Space

Understanding the space that you have under consideration is a multi-step process. First, you will want to extensively tour it. Next, remeasure it to insure that you are getting the usable square footage that the lease specifies. Then, bring in outsider experts to help see if the exact internal dimensions and configuration of the space's wiring, HVAC, columns and other elements will let you do what you need with it. Once you've confirmed that the space works, your due diligence turns to the other tenants. Are they stable? Will they be good fits for your business? Your law firm might benefit from being next to an accountant's office, but what about being next to a dentist?


4. Do Lease Due Diligence

If the space and building work for you, it's time to go over the lease in detail. Read every business term and analyze all of the legal language to truly understand the document's impact. Remember to read attachments to the lease, like building rules and regulations, that can have meaningful impacts on your tenancy.


5. But Wait... There's More

While not technically a part of your lease, there are other documents that require careful analysis as a part of your due diligence. Ask to review the building's insurance to see if it will work together with your company's coverage to protect your business, your belongings and your employees. Finally, pay careful attention to the building's CAM and maintenance histories to have some indication of what your ongoing operating costs will be and what expenses could come in the future.


Here are some other articles you might enjoy:

5 Rights That Corporate Tenants Have

Commercial Leasing Mistakes to Avoid

7 Things to Look Out for in Your Office Lease


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Don Catalano

Don Catalano