Access our archived commercial real estate training Leasing Intervention Tips and acquire the knowledge and tools to help you better negotiate a commercial lease.
Leasing Intervention Tip 012
What’s the Use? | Landlord Restriction: To have a use clause for a nail salon that merely states that “tenant shall use the premises for a nail salon and no other purpose” is an example of a narrowly-defined use cause that will, down the road, come back to bite the tenant in its proverbial butt. Tenant Counteraction: Conversely, when it comes to a landlord consenting to a potential sublease or assignment of the space down the road, but for the use of the space as a restaurant or other “wet” use, a tenant can, metaphorically speaking, drive an eighteen-wheel tractor trailer sideways through a use clause that broadly states, “tenant may use the premises for a nail, health, fitness and/or beauty facility with the sale of health related and men’s and women’s clothing.” Explore our Use Clauses within a Letter of Intent (“LOI”) Cheat Sheet to learn more.
Leasing Intervention Tip 011
The Letter of Intent (“LOI”) and Leverage | When negotiating a letter of intent (“LOI”), a tenant never has more leverage in its negotiations with the landlord than during the LOI preparation and negotiation stage. Once the LOI terms have been agreed to, although the deal is not truly effective until such time as the lease has been fully executed and delivered to all parties, once the lease has been prepared and while it is being negotiated, the tenant has most definitely lost a fair portion of its leverage. Stated a bit differently, at the LOI stage the landlord is either attempting to seduce a prospective tenant to lease space in its building, or alternatively, for an existing tenant to remain in its space to avoid vacancy and lease up costs (and the absence of revenue loss) associated with a tenant making like the Grateful Dead as they go Truckin’ to another building at lease expiration. View a few basic examples of why we at Leasing REality feel that a tenant has lost a significant portion of its negotiating leverage subsequent to the LOI stage.
Leasing Intervention Tip 010
There are No Savings for a Tenant if it Doesn’t Hire a Broker | Generally, a landlord will pay no less than a full commission on a lease regardless of whether a tenant has a broker. Simply put, if a tenant has a broker, that fee is shared with the landlord’s broker. If the tenant does not have a broker, the landlord’s broker gets the entire fee. Even on many office deals where there is an “override” increasing the full 100% commission up to an additional 50% (with a 100% commission going to the tenant’s broker and 50% commission going to the landlord’s broker) – many landlords will agree that for the sake of getting a lease signed, it is worth the extra cost to have both parties represented by sophisticated brokers. Watch a Video or view Slides to see our not-so-dirty baker’s dozen list as to why commercial real estate brokers are an essential and integral part of any commercial lease transaction and “the system” itself.
Leasing Intervention Tip 009
“It Isn’t What It Is – Size Does Make a Difference Theory” | Although loss factors and rentable square footage (“RSF”) are generally non-negotiable, depending on the nature of the deal, the market place, the financial strength of the tenant, the size of the space itself, and lastly, the negotiating “juice” that a tenant brings to the table, it is not totally uncommon for tenants to request: (1) A verification of the RSF calculation by way of re-measurement or architect certification; (2) the inclusion of language requiring the percentage used by the landlord for the loss factor calculation not to exceed a certain set amount (for example, on Long Island, many brokers for Class “A” space include in their proposals that the loss factor cannot exceed twenty percent (20%)); and/or (3) the loss factor calculation be based on a locally, regionally or nationally recognized measurement standard. Why Was There Shrinkage? Watch our Loss Factors in a Commercial Lease Video to find out.
Leasing Intervention Tip 008
Top 6 Construction Risk Mitigation Tools | (1) Construction Escrow Agreement, (2) Payment Bond, (3) Performance Bond, (4) Individual and/or Corporate Construction Completion and Payment Guaranty, (5) Builder’s Risk Insurance, and (6) Requiring Periodic Delivery of Lien Waivers Throughout Construction Project. View our Construction Project Completion & Payment Mitigation of Risk Leasing Tips Cheat Sheet to learn more.
Leasing Intervention Tip 007
Finding New Space & Relocation: The Construction Process for Commercial Tenants | (a) Order any long lead items, new equipment or furniture, and given that the majority of landlord’s will want nothing to do with your telephone and internet wiring – find the right firm to take care of this – as well as your long-term telecommunication needs. (b) If the landlord is building out the space, make sure that, as a tenant, you will be on the hook for little or none of the build-out cost, if possible. (c) Have a kickoff meeting with all parties who will be part of the construction and build-out process in order to set expectations and get all concerned on the same page. (d) During the construction process, have weekly or bi-weekly periodic meetings thereafter – whether by phone or videoconference, or at the job site. Check out our Top 12 Finding New Space & Relocation Tips for Commercial Tenants Cheat Sheet and our Tenant’s Guide to Space Searches & Moving Short Video series for additional pointers.
Leasing Intervention Tip 006
Cannabis Industry’s Potential Impact on Commercial Real Estate and Leasing | Given that cannabis is technically a controlled substance, federal authorities may enter business establishments and charge those involved with forfeiture proceedings. Be aware of what is known as the Crack House Statute, which under Title 21, makes it a felony to knowingly open, lease, rent, use, or maintain any place for the purpose of manufacturing, distributing, or using any controlled substance. In addition to the foregoing, there is other liability under the federal Controlled Substances Act. Percentage Rent | Keep in mind that given the current federal laws, essentially profit sharing of any kind is out of the question. In short, landlords need to avoid having a financial stake in the tenant’s business as it will technically have a stake in an illegal business! Explore our “I Want to Take You Higher” Blog, Top 20+ Things to Know about the Cannabis Industry’s Potential Impact on Commercial Real Estate and Leasing Cheat Sheet and Cannabis Issues in Commercial Leasing (Part 1) Video to learn more.
Leasing Intervention Tip 005
Assignment & Subletting Leasing Trade Secrets and Other Truths | Landlord’s Goal: Landlords should seek to control the mix and strength of the tenant base and the ability to maximize its profits. In a landlord’s world, if anyone is going to make money of the space it leases out – but for the profit a tenant can make from its retail sales – it will be the landlord who does so and not the tenant! Tenant’s Goal: The tenant’s goals will usually be directly opposed to that of the landlord. Tenants will want to have as much business and financial flexibility as possible throughout the term of the lease, be it a five (5) or fifteen (15) year lease (or something in between). Subscribe now to unlock our Assignment & Subletting Cheat Sheets. View our Top 20 Assignment and Subletting Provisions Cheat Sheet here.
Leasing Intervention Tip 004
A Landlord’s Control Freak Nature | Landlord Advocates: All landlords need to have some semblance of control over (a) what work is going to be performed in its building, (b) who will be performing that work, and (c) what protections it will have when that work is being performed. Landlords should include language in its lease that any work that is to be performed (and any contractor who may be performing that work) must be subject to landlord’s approval. Tenant Counteraction: The phrase “not to be unreasonably withheld, conditioned and/or delayed” must always follow any language requiring landlord’s consent or approval. If language appears in the lease requiring that landlord’s consent to any work be subject to landlord’s sole discretion, tenants need to change that as best they can to read, at the very worst, that landlord’s sole discretion be reasonably exercised. Watch Landlord & Tenant Work: Design and Construction Drawing Leasing Tips Video now.
Leasing Intervention Tip 003
“Going Through Changes” | Until the new Financial Accounting Standards Board (FASB) reporting changes take place for public companies subsequent to December 15, 2018 and for private companies subsequent to December 15, 2019, commercial leases will essentially continue to be reported as an “off-balance sheet” item. After those periods come into play, commercial space leases will be considered capital leases, which in laymen terms means … Find out what that means with our FASB Commercial Lease Accounting Reporting Changes Cheat Sheet.
Leasing Intervention Tip 002
Incentivizing Tenant Renewal | Landlord & Tenant Advocates: If a landlord has a reliable tenant in possession of the premises, it may be prudent to incentivize the tenant to stick around for another term. Given the costs associated with a tenant vacating a space (e.g., loss of revenue from a vacancy turnover, payment of a full brokerage commission or even a one hundred fifty percent (150%) commission on an office deal with an “override,” legal and architectural fees and the possibility of providing both landlord’s work and a tenant improvement allowance), landlords should consider some sort of “hometown discount” when it comes to free rent concessions on a renewal although it might not be necessary to treat an existing tenant as a true free agent. Dive into our Free Rent Concessions Cheat Sheet here.
Leasing Intervention Tip 001
A good guy guaranty (“GGG”) in its simplest form is not intended to be a straight personal guarantee. The generally understood meaning of a basic GGG is that one or more principals (a “Guarantor”) of a corporate entity (such as a corporation or a limited liability company) will guarantee to the landlord that it shall, at a bare minimum, pay all base and additional rent payments provided for under the lease until the day the space is surrendered to the landlord – whether or not prior to the expiration of the lease term. Once the space is returned to the landlord in broom clean condition, vacant with all rent paid through the date of surrender, the GGG will be satisfied. At its most basic level, a GGG serves to (a) incentivize the corporate tenant to pay its rent during occupancy and (b) helps a landlord expeditiously regain control of the space if tenant becomes non-paying while somewhat minimizing a landlord’s short and long term risks. To view the Top 10 Legal and Business Steroids Injected into Modern Day Good Guy Guarantees (and Tenant Counteractions Thereto), click here.