Apr 25, 2016

Tenant Tips to Thinking Like a Landlord

By Don Catalano

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As a commercial real estate tenant, you can be forgiven for focusing on your business and its needs. After all, you have mouths to feed internally, vendors to pay externally and customers to satisfy. However, if you can wear another pair of shoes on your busy day, thinking like your landlord can help you negotiate better leases and achieve better outcomes in your tenancy.



The key to thinking like your landlord is to understand what he wants from his commercial real estate properties. Their needs are very simple:

 

  1. They want their building to stay full with paying tenants

  2. They want to collect monthly income that goes up over time.

  3. They don't want to work unnecessarily hard for number one or number two

 

Here are ways to satisfy those needs and keep your landlord on your side.

 

Landlords Love Stability

If there is any way that you can swing it, try to negotiate a longer term lease. Typically, the longer you are willing to stay, the more concessions your landlord will make to get you to sign the lease. He knows that empty space is expensive, so if he can have you stay longer and have to deal with fewer new tenants over time, sweetening the pot for you can be a good investment.

 

Also, realize that when a commercial real estate landlord signs a lease with you, he's taking a big risk. He gives you control over the space today for your promise to pay in the future. If you can, share as much information as possible to let him know that you're a safe choice. While you won't want him to share your financials with anyone willy-nilly, consider giving him the right to share information on you with prospective buyers or lenders. It will make it easier for him to refinance or sell the building when the time comes.

 

Don't Sweat Rent Increases and CAMs

It's only reasonable to negotiate as good a lease rate as possible. However, if you have to give, offer that landlord the security of knowing that he can increase your rent -- by a set amount -- in the future. Consider offering 2 to 3 percent annual increases. This helps protect him against inflation and gives him some built-in income (and value) growth. While you might not be overjoyed at knowing that your commercial real estate occupancy costs are guaranteed to go up every year, a fixed increase of around the historical rate of inflation should keep those costs in line with your other operating expenses.

 

Don't fear triple net leases where you pay CAMs, either. The more control you have over your operating expenses, the more ability you have to change behavior or vendors and lower occupancy costs.

 

Be an Easy Commercial Real Estate Tenant

Finally, be easy to work with. Pay your rent on time every time, no matter what and follow all of your lease's requirements. Try to minimize disturbances with other tenants. One way to do this is to bring tenants to the building like your customers and vendors. That way, you will all work together, and your landlord will see you as a positive part of the building's community. These types of common sense business practices will set you apart from other tenants and make it more likely that your landlord will work with you when you have to ask for a concession, for expansion or for the right to renew your space.

 

Commercial Real Estate articles to check out:

The Future of Office Space

What CEOs Need From Office Space

Commercial Lease Renewal Myths... Busted!

 

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Topics: commercial real estate, tenant tips

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Don Catalano

Don Catalano

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